When reporting the sale of mutual funds on your tax return, do not make the common mistake of paying too much in tax!  The gain on the sale of your mutual fund shares is the difference between how much you paid for the shares and what you sold them for.   Many people overlook including the original cost of shares they received through reinvested dividends in their cost when reporting a sale.  Treat these reinvested dividends as though you received a check for the dividend and then purchased the new shares.  This will insure that you don't report more income (and pay more tax) then you have to.

Reduce the Cost of Your Credit

There are only a few types of interest expense which are deductible.  Included in this short list are most home mortgage interest, home equity interest, investment interest and interest related to a trade or business.  Personal interest, such as interest on credit cards and car loans is not deductible.  By reviewing your debt and restructuring it, you may be able to convert a non-deductible expense into a deductible one and reduce the effective cost of your credit.

You should note that converting unsecured debt into debt secured by your residence in order to gain a deduction, may not be the wisest move in all situations.

How to Save More for Retirement

A new study by the Employee Benefits Research Institute indicates that people who have taken the time to calculate how much money they will need for their retirement years, have accumulated almost five times as much as those who have never taken the time to do so. 

The reason for this disparity is that by performing the analysis, these individuals have become aware of how much more they should be saving. 

Don't let your retirement sneak up on you unprepared!

Name an IRA Beneficiary

Aside from directing the disposition of the funds you have accumulated in your IRA during your lifetime, the naming of a beneficiary (or beneficiaries) has significant tax implications as well.

If an IRA owner dies before reaching the date minimum distributions are required without naming a beneficiary, the entire balance of the IRA must be distributed within five years after the year of his or her death. If the IRA is payable to a named beneficiary, the balance in that account may be distributed over the beneficiary’s life expectancy (provided distributions begin by December 31 of the year following the year of death). If the spouse is the designated beneficiary, the surviving spouse may defer taking distributions until December 31 of the year during which the decedent would have turned 70 ½ (or he or she may treat the IRA as her own).

If an IRA owner dies after reaching the date minimum distributions are required, the remaining account balance must be distributed at least as quickly as under the method of distribution in effect up until that time. Naming a beneficiary and basing the distributions on their joint-life expectancy can reduce these required minimum distributions.

Avoid Underpayment Penalties

Individual taxpayers are generally required to pay their income tax liabilities throughout the year by having taxes withheld from their salary or by making quarterly estimated tax payments. You are able to avoid any additional interest and penalties for underpaying estimated taxes by (1) paying at least 90% of the tax shown on your current year’s return or (2) paying 100% of the tax shown on your prior year’s return.

A special rule applies if your "adjusted gross income" is more than $150,000,  $75,000 if your filling status is married filing separately, you must pay 110% of the tax shown on your prior year's return.

Contribute to an IRA - And Do it Early in the Year

Contributions to an IRA benefit you two ways. First, you get a deduction (subject to certain limitations) from your current year’s taxes. Second, your investments grow tax deferred while in the IRA. This tax deferred compounding is a powerful ally in your retirement planning. If you contributed $2,000 per year for 30 years and invested at 10% at the beginning of each year you would have accumulated $361,887 for your retirement. If you were to make your investments at the end of each year, you would accumulate only $328,988.

Benefit from Gifts of Stock

If you have appreciated stock in your portfolio, consider donating it to charity in lieu of writing a check. For stock held more that twelve months that is donated to a qualified charity, your charitable deduction will be the stock’s fair market value. The kicker is that the appreciation realized is not included in your taxable income.

Check Your Insurance

Life and disability insurance should be reviewed periodically for adequacy. Basically every time there is a change in your family situation, such as a birth or adoption, a new home purchase, marriage or a divorce. Homeowner and auto insurance should be reviewed periodically for adequate coverage as well.

Have an Estate Plan

Estate Plans are essential for every family, not just for the wealthy. An estate plan should include such documents as a will, a durable power of attorney, a living will and trusts. The estate plan should cover the disposition of your wealth, your desires relating to medical treatment in case of incapacity, and your wishes as to who will be responsible for the care of your children in the event of the death of both spouses.