Stock Values

Disclosures: I am not an accountant, but I have dated one. I am not a tax preparer, but I am related to one. Information provided herein is not tax advice, but I hope you find it useful. I am not affiliated with Intuit, the maker of Turbo Tax software, I do not own Intuit stock and do not get paid to promote their software. I do, however, own shares of a tax preparer Jackson Hewitt Tax Service Inc (JTX), which has nothing to do with this article.

It is not yet too late for you to substantially change your 2008 tax liability, but time is running out fast. If you hold any investments in your non-IRA accounts, it is especially important for you to run the estimate this year.

Even if you have never estimated your taxes before - this is the year to do it. There are several reasons why it is especially important this year:

1. Long term capital gain and qualified dividend Federal taxes are reduced to 0% for folks in the lowest two income tax brackets (that's up to $65,100 for marrieds filing jointly) and are capped at 15% for everyone else.
2. Many ETFs and Mutual Funds paid out unusually high distributions this year. Some portion of these payouts may be taxed at your regular income tax rate, while others will qualify for the above special treatment.
3. This year you are much more likely to have positions in your account that have cost basis far below their current market value.

All of the above reasons combine to allow you much more control than usual over the Federal and State taxes you will pay in 2008, with only small changes to your year end positions. But remember, you only have until the end of trading on Wednesday, December 31st to make the changes.

But estimating taxes is expensive, isn't it?! It certainly could be, if you hired an account to do it for you. So how can you do it inexpensively? There are many free sites on the Internet that offer to help you with this daunting task. But which ones can I trust to do it right? Well, that's exactly the problem, as every one of the free sites I tried to use, botched the computation of my tax liability, apparently having problems properly handling the capital gains tax calculation.

In my desperation I turned to the online tax gurus - the TurboTax. Of course, I could purchase their software to estimate my taxes, but I was not ready to do that quite yet. Their online tax software versions, however, allow users to do their taxes and only pay, if they want to print or file their tax return.

I chose to use the Turbo Tax Premier online and it turned out to be exactly what I was looking for - a handy tool that I could use for free to play quick what if scenarios and receive accurate tax estimates not just for Federal but for my State taxes, too. I was not forced to register (if you choose not to register and the site times out due to inactivity, you will loose all the data you entered) or to enter any of my personal information and even left my last name and address fields blank. (Of course, to get the state tax information, you will need to enter your state of residence.) I simply entered and modified the various income category numbers until I maximized my preferentially treated realized gains, while reasonably minimizing my combined Federal and State income taxes.

This tremendous free estimating tool helped me decide on additional year-end transactions to perform. So, if you, like most people have never tried estimating your taxes before the end of the year, due to the complexities of doing it yourself, or the fear of receiving a huge bill from your accountant, it really is not that difficult with TurboTax. Give it a try, give yourself a tax break and use the money to help our economy by buying a really nice gift for yourself this holiday season!

Wishing you all the best for Christmas, Hanukkah, Kwanzaa, New Year or whatever holiday you may be celebrating around this winter solstice.