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Client Profile of the Month

Raul will owe the IRS a substantial amount when he files his 2005 tax return. How can he trim his 2006 tax liability?

The best way for Raul to avoid another hefty tax bill next year is to become proactive in his tax planning. While many strategies are available, most are effective only if steps are taken before a transaction occurs.

Because Raul owns a large investment portfolio, he may wish to focus his tax planning on it. While Raul shouldn't allow taxes to drive his decisions, he would be unwise to disregard the tax implications of his investment transactions.

Raul owns shares in a number of mutual funds. If he decides to sell only a portion of his holdings in a particular mutual fund, he should decide in advance which method of determining his cost basis in the shares sold will be most advantageous to him from a tax perspective. Then, if need be, he can tell his broker or fund representative which particular shares to sell. The key is to carefully choose a method before selling.

Raul's high tax bracket may make municipal bonds an attractive choice for the fixed income portion of his portfolio. Interest on municipal bonds is generally exempt from federal income taxes and also may be exempt from state income taxes in the state of issuance.

If you have a tax planning question or concern, we urge you to talk with us. We'd be pleased to assist you.*

*Client Profile of the Month is based on a hypothetical situation. The solutions we discuss may or may not be appropriate for you. Talk to us before taking any action.