Prepare for the inevitable: higher taxes
By Linda Stern
WASHINGTON (Reuters) - Amid all of the financial and economic uncertainty in the world today, there is one sure thing: Your taxes are going to go up. You can take that to the bank.
Even before the kabillion-dollar bailout proposed by Washington, the Federal government was spending $400 billion more every year than it was taking in. Figure in aging baby boomers signing up for Social Security -- and a few years after that, Medicare -- and there's no way to start closing that chasm other than by raising taxes.
Even George H.W. "Read My Lips" Bush saw that writing on the wall and raised taxes during his presidency.
"Congress will raise taxes regardless of who wins the presidential election," said Janine Racanelli, of J.P. Morgan Private Bank.
The good news about all the bad news is that it offers taxpayers a little bit of time to prepare. Here are some actions to take before the end of the year:
-- Sell losers. If you haven't done it yet, this is a good time to dump any stocks or mutual fund shares that you have lost money on. You can cancel out any capital gains on winning investments with the losses you reap and use an additional $3,000 of losses to offset ordinary income.
If you have bigger losses than that, they will carry forward and offset your income in 2009 and beyond, until you've used up all of your losses. Caveats: Do not buy back the same securities you sell within 30 days of selling them, or you will not be able to deduct the losses. And don't bother doing this in your retirement account, you can't take those losses.
-- Sell winners too. If you've got a big gain in a stock you want to sell, this might be as good a time as any to do that. Capital gains rates are as low as they have been in 30 years, and there is some pressure to increase them. Continued...