With changes in the market making year-end tax planning especially challenging this year, now is the time to start your planning.

Since your tax-planning opportunities will expire at midnight on December 31, 2005, it might help you to review a simple checklist of some investment-related tax planning actions that must be taken beforehand. First, if you have any capital gains or losses from the sale of stock or other capital assets, give me a call to discuss how to best coordinate the timing of your gains and losses. Second, consider converting investment income taxable at regular rates into qualifying dividend income taxed at a top rate of 15%, or vice-versa, based on your individual situation. Also, consider making an unlimited number of $11,000 annual exclusion gifts to save on gift and estate taxes.

Other recommendations include:

• Establishing a retirement plan if you are self-employed.
• Disposing of a passive activity before year-end, which may allow you to deduct suspended losses.
• Selling a bond that is worth less than you paid for it to create a realized capital loss.
• Timing the sale/purchase of mutual fund investments. Mailing checks for charitable contributions on or before December 31 to maximize your income tax deduction.
• Increase your itemized deductions by pulling charitable contributions planned for next year into the current year.
• Increase your itemized deductions by pre-paying in 2005 next year’s tax and deductible interest payment.
• Pay any remaining 2005 real estate taxes and state income tax before December 31, 2005.
• If you have had some large unreimbursed medical bills in 2005, pay as many as possible before the end of the year in order to meet the percentage limitation medical expenses.
• You may decide to deduct the 2005 sales taxes you paid if they exceed state and local income taxes you paid. If so, consider purchasing big ticket items before the end of the year.
• Contribute the maximum allowed to your 401(k) or other retirement plan. The benefits are two-fold: current taxable income is reduced, and you enjoy tax deferral on the plan growth.
• If you are in business, look at next year’s planned purchases. It may make sense to accelerate those expenses into 2005. Also, you can expense $105,000 of equipment you buy in 2005.

Contact us for a year-end tax planning review