Smart Year-End Tax Moves for Investors

A short list of some last-minute deductions and other potential savings.

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Never mind the red circle around April 15. Tax season is right now for qualifying taxpayers who risk leaving money on Uncle Sam's table. Here's a short list of some last-minute deductions and other potential savings that must be on the books by December 31 in order to count for the 2011 tax year.

Always consult your accountant or tax professional for the latest law changes and to verify if you qualify.

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1. Max out your 401(k) contribution. While you have until April to fund an IRA for the 2011 tax year, you have only until the end of the year to maximize contributions to a 401(k). You can put away up to $16,500, (or $22,000 if you'll be 50 or older by December 31). Even small increases add up. For example, a $1,000 contribution cuts a federal tax bill by $280 if you're in the 28 percent bracket.

You may also consider a "recharacterization." If you converted a traditional IRA to a Roth in 2011 and have since experienced losses, you might want to reverse the conversion because your tax bill is based on the IRA's value at conversion, not its current value. In that case, you'll owe income taxes on money you no longer have.

2. Give a little, get a little. Get in the holiday spirit by helping others. You will need to itemize your tax deductions to claim a cash or property charitable donation that exceeds $250. There are specific supplemental IRS forms to include, depending on the amount donated. For instance, an appraisal is required on property worth more than $5,000.

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Opting for stock donations over cash donations can bring added savings. This tax-planning tool is based on the general IRS rule that the deduction for a donation of "property" (the shares are property) to the charity is equal to the fair market value of the donated property. When the donated property is a "gain" property, the donor does not have to recognize the gain on their filing. That means tax filers can take advantage of the charitable deduction, plus avoid tax on the appreciation in value of the donated stock.

3. The gift of learning. Have you contributed all you can to your child's 529 college savings plan this year? Although contributions are not deductible on your federal tax return, they lower your taxable income. The investment grows tax-deferred and can be tapped tax-free for college costs.

Plan contributions are covered under gift tax rules for parents and the generation-skipping transfer tax when Grandma and Grandpa are the givers. If your contribution is less than $13,000 annually, you're excluded from the gift tax. That means most people can make fairly substantial annual contributions without incurring this tax. Plus, contributors can spread the gift tax requirement over a five calendar-year period, up to $65,000. State income-tax treatment can vary, with some states offering a tax deduction on contributions. Research your state's plan here.

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4. Unload portfolio dogs. Use capital losses (which only count when you've actually sold the investment) to offset gains. You can deduct up to $3,000 from other income for single filers or couples filing jointly. With a net loss of more than $3,000, the leftover portion can be carried over to the next tax year. In fact, the unused loss can be applied to next year's gains, as well as up to $3,000 of earned income. Investors can take advantage of losses on stocks they may still feel bullish about over the longer term by selling the shares, then buying them back once 30 days have passed. This "wash sale" rule prohibits filers from claiming a loss if they buy and sell the same security within 30 days. Investors should keep in mind the risk that share prices could move in a direction against them.