The year 2010 will go down as one of the most important years for tax planning in U.S. history. As the Bush tax cuts from 2003 get ready to expire if Congress does not act to extend them, investors will be faced with an even larger tax bill going forward if they choose to delay realizing some of their gains into next year based on some of the higher rates we'll see. Most importantly for Gen Y, capital gains and dividends taxes are set to rise, in addition to marginal income tax rates.
Capital gains taxes are especially important as a focus area because this is the perfect time to rebalance your portfolio and plug some of the gains into losing positions to get back up to your desired allocation. Since successful positions will naturally rise to a greater proportion of your overall asset allocation, taking profits in those positions will enable you to tweak your allocation to remain at your desired levels.
With capital gains tax rates at 0-15% this year based on the tax bracket you are in, you will also be able to better offset this year's smaller tax bill with potential losses that will go towards reducing the overall amount you have to pay. Keep all of this in mind as you go about preparing to get your financial situation in order as the end of the year approaches.
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