You’re not the only one. Congressional inaction on tax laws has most everyone tongue-tied as to what to do about their current and future tax plan.  Unfortunately, the one plan most everyone is tempted to follow and shouldn’t follow is doing nothing. Here are just a few things you may want to consider before the end of 2010:

#1…The Long-Term Capital Gains Rate…For 2010 this rate sits at 15%; however, this is considered by many to be the “rich man’s tax” and anticipate that it may be raised at least to 20%, if not more. The proposal made last week would tax long-term capital gains at the tax rate for ordinary income. Are there any long-term capital gains in your portfolio you should consider liquidating?

#2…Dividend Paying Stocks…This could be the same story as the long-term capital gains rate, but with an evil twist. If rates are raised on dividends, a sell-off on these stocks could be forthcoming.

#3…2010 Roth Conversions…Time is running out to take advantage of the special deal Uncle Sam made for those individuals who decide to convert their traditional IRA or other retirement plans to Roth IRAs in 2010. You have the choice whether to be taxed entirely in 2010 on the amount you convert this year or to split equally and be taxed over 2011 and 2012. The advantages are:

• Assets Grow Tax Free
• Qualified Distributions are Tax Free
• Required Minimum Distributions (RMDs) are not viable during your lifetime

If you are interested in taking advantage of the Roth Conversions, be cautious. There are many tax traps that may be associated with the conversion and this may not be the best strategy for your unique situation. For more information about the advantages and disadvantages of Roth conversions, visit our on-line learning center at www.kennedy-financial.com.

#4…Accelerate Charitable Donations…If you are charitably inclined you may want to make future donations this year to offset taxes triggered by selling assets with long-term capital gains, IRAs converted to Roth IRAs, etc.

#5…Required Minimum Distributions (RMDs)…They are back for 2010. So, if you turned 70 ½ last year, you must take your first required minimum distribution by December 31, 2010 or else you will be penalized. If you turned 70 ½ this year, you have until April 1, 2011 to take your distribution. However, this may put you in a bind. You will have to take your 2011 RMD by the end of 2011 meaning you would be taxed on 2 distributions in 1 year, perhaps causing you to be pushed into a higher tax bracket.

#6…Consider More Tax-Efficient Investments…Tax efficiency doesn’t always mean lower projected returns on your investments. Talk with your advisor about alternative investments that may be more tax-efficient and still meet your investment objectives. A couple of ideas are non-traded real estate investment trusts, which in many cases are 70% taxable and 30% tax-free; or annuities, which allow some tax-deferral.

#7…Avoid Estimated Tax Penalties…If you underestimated your withholding for 2010 could be subject to a penalty, you can possibly use your IRA to mend the issue. Work with your tax professional and investment advisor to calculate the discrepancy in your withholding payments and take a distribution of this amount from your IRA while selecting to withhold the entire amount. This is treated as though the amount were paid in equally throughout 2010. DO NOT attempt without professional help. There are significant tax traps you could be subject to.

It is December and time is running out to get your 2010 ducks in a row. Yet there are considerable benefits to be had with a little bit of planning. I sound like a broken record, but you don’t know what you don’t know. And what you don’t know could be the very thing that ends up biting you. Have the tax talk with your Life Planner to see if you should be revising your plan in the few weeks left of 2010.

Securities & Advisory Services offered through VSR Financial Services, Inc., a Registered Investment Adviser and Member FINRA/SIPC. Kennedy Financial Services is independent of VSR Financial Services, Inc. VSR does not provide tax or legal advice. Kennedy Financial Services is not engaged in rendering legal or tax advice. Individuals should consult with their own legal or tax advisor concerning their own specific situation.