INSIDE FINANCE
Make A List and Check It Twice

By Robert M. Jaffe, MBA, AAMS
December 09, 2005

'Tis the season of merriment, giving and receiving, overindulgence and attending to year-end chores amidst the holiday cheer. While you're wrapping all those gifts, don't forget to wrap up details of your 2005 tax strategy. It's never too late until the clock chimes 12 on December 31st.

In the spirit of the hour, here are some practical suggestions that may enable you to give a little to your favorite uncle….Sam, that is. Let me be perfectly clear that I am an investment adviser, not a professional tax adviser. The suggestions listed herein are based upon IRS regulations and should be discussed with your CPA as to their applicability to your personal situation.

1. Personal Exemptions, take 'em - Every taxpayer may claim a personal exemption unless, of course, you are being claimed as a dependent on someone else's tax return. For this year each personal exemption reduces your AGI (adjusted gross income) by $3,200. So, for example, if you have four children under the age of 19 and a loving spouse, you may claim six exemptions and your AGI just decreased by $19,200. However, speak with your tax adviser as the phase-out for joint filers ranges between $218,950 - $341,450.

2. Itemized Deductions, make the most of 'em - If 2005 has been a great year for you and even if it hasn't, you should consider deferring income and accelerate deductions. Again, the caveat is talk with your tax adviser! Be certain to discuss the AMT (alternative minimum tax) as if you have a multitude of deductions you might be subject to the AMT which is becoming "octopus-like" in encompassing more and more taxpayers each year. Some areas to review are as follows:

a. Charitable deductions such as appreciated stock and property. Consider Donor Advised Funds if you don't have a special favorite such as your religious affiliation, educational institution, hospital, etc.

b. Turn non-deductible interest into deductible with a home equity loan or line of credit. Those awful credit card interest payments, car loans, etc. mount up and aren't deductible. You could pay them off with a home equity line or loan. Be sure to look carefully at both as a line may carry a variable rate whereas a loan can be secured with a fixed rate of interest. In this environment of rising interest rates, this is of great importance.

These year-end suggestions should be reviewed with your tax adviser NOW. No doubt he or she may have many more for your consideration. As for my investment advisory advice, I recommend you look at unrealized losses in your investment portfolio to determine whether you may harvest tax losses to offset realized gains. You may use $3,000 of losses in the calendar year and carry forward the excess for five years.

There you have it, a "gift" of knowledge that could make your holiday season a little brighter this year. In any case, my heartiest good wishes for a joyous observance of your choice and as Tiny Tim repeats each year, "God bless us, everyone."

Please Email bob@cfsias.com with your questions.

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INSIDE FINANCE will appear regularly, addressing financial matters of interest to our readers. Any questions? Email bob@cfsias.com

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member NASD/SIPC. Cambridge and CFS are not affiliated.

The preceding article is for informational purposes only and should not be used as the primary basis for an investment decision. Indices mentioned are unmanaged and cannot be invested into directly. Past performance does not guarantee future results. All examples given are hypothetical and do not reflect actual investments. The views expressed in this article are those of the author and are not necessarily those of Cambridge. Bob Jaffe is Managing Director of CFS Investment Advisory Services, LLC in Totowa and has been a Clifton resident since 1984. Active in community affairs, Bob is Past Board Chairman of the North Jersey Regional Chamber of Commerce and a member of its foundation board. He serves as a commissioner on the Clifton Rent Leveling Board and the Committee for Individuals with Disabilities. He is Vice President of the Clifton Rotary Club. Representatives of Cambridge do not offer tax or legal advice. Consult a professional for your personal situation.