Tips to consider for year-end tax planning

Many people tend to wait until the last minute to file their taxes. However, good tax planning throughout the year can help you better manage your tax burden and possibly allow you to keep more of your hard-earned money in your pocket. Consider these strategies to help you lower your taxes in the current year.

Keep in mind that any decisions that can have a tax impact should be made only after consulting your tax advisor.

Consider using these tax strategies to help you reduce your taxes in 2008:

• Make charitable contributions so you can claim them on your 2008 return. Contributions to qualified organizations can be claimed only if you itemize deductions, and the deduction for such contributions is limited. Also, keep in mind that cash contributions require a written receipt from the charity regardless of the amount, so checks are a better method of payment for smaller contributions.
• Gifts to children. During 2008, the first $12,000 given to each child (or any other person) is not subject to gift tax. Also, spouses who consent to split their gifts may transfer a total of $24,000 per child in 2008 free of gift and generation-skipping transfer tax.
• To avoid 2008 tax penalties, check out your W-4. To avoid estimated tax penalties, it's a good rule of thumb to make sure your withholdings or estimated tax payments total at least 100% of your 2007 tax liability. However, if the adjusted gross income (AGI) shown on your 2007 return exceeded $150,000 ($75,000 for married filing separate returns), you'll likely want these amounts to total at least 110% of your previous year's tax. Check your pay stub and your W-4 and talk to your tax advisor.
• Take steps to help protect your identity. Don't share private information from your tax return, especially Social Security numbers, with anybody who does not need it. Keep past tax records in a secure place to help prevent the risk of identity theft.

Put money in your IRA

There are a number of good reasons to put money to work in a Traditional Individual Retirement Account (IRA). Most important is that it can help you build a secure retirement. As individuals continue to take more responsibility for their own financial well-being in retirement, an IRA can be a critical component in your retirement planning strategy. Individuals can contribute up to $5,000 in 2008 (or 100% of earned income, whichever is less) to a Traditional or Roth IRA. Those age 50 or over can also make an additional catch-up contribution of $1,000 per year.

IRAs also offer an important immediate tax benefit — all earnings in an IRA accrue on a tax-deferred basis. This allows your money to grow more quickly than if taxes were being subtracted from your earnings. That's all the more reason to make your 2008 contributions as early as possible. While you can wait until April 15, 20091 to make your IRA contributions for 2008, the sooner you put your money to work, the more quickly you can take advantage of the tax-deferred growth potential.

Depending on your income level and eligibility to participate in an employer-sponsored retirement plan, you may be able to deduct your Traditional IRA contributions (Roth IRA contributions are not deductible).

If either you or your spouse is covered by an employer-sponsored retirement plan such as a qualified retirement plan or 403(b) plan, you may be eligible to deduct all or part of your contributions from current income based on your tax filing status and modified adjusted gross income (AGI). No deductions are allowed if modified AGI is above $63,000 for a single person or $105,000 for joint filers.

If you are single and you are not covered by an employer-sponsored retirement plan, all contributions to a Traditional IRA are fully deductible. When only one spouse is covered by an employer-sponsored retirement plan, the noncovered spouse's IRA is generally deductible until the couple's combined (modified) AGI reaches $159,000, and then it's phased out from $159,000 to $169,000.

IRA deductibility for people covered by qualified retirement plans (QRP) — 2008 Tax Year

Single filers
Fully	Partially	Nondeductible
< $53,000	$53,000 - $63,000	> $63,000
Married people, filing jointly
Fully	Partially	Nondeductible
< $85,000	$85,000 - $105,000	> $105,000

Roth IRA opportunities scheduled to grow

While Roth IRA contributions can only be made with after-tax (nondeductible) dollars, all earnings grow on a tax-deferred basis. Qualified withdrawals (at retirement or in other special situations) can be made tax free!

You must meet specific income requirements in order to qualify to make Roth IRA contributions:

Eligibility to make Roth contributions — 2008 Tax Year

Single filers		Married people, filing jointly
Full contribution	Partial contribution	Full contribution	Partial contribution
< $101,000	$101,000 - $116,000	< $159,000	$159,000 - $169,000

In 2010 more people may be able to take advantage of the ability to convert Traditional IRA assets to a Roth IRA. In that year new laws will take effect eliminating the modified AGI limits that currently restrict the ability of some people to convert assets to a Roth IRA.

Maximize contributions to other retirement plans

If you participate in a qualified retirement plan (QRP) at work, you are taking advantage of one of the most attractive tax benefits available to individuals. Typically, contributions are made on a pretax basis, with income deferred into your retirement savings before taxes are withheld from your paycheck. That reduces your current income tax liability (although not your FICA taxes), while your retirement savings grow on a tax-deferred basis.

Today's tax laws give you the flexibility to defer a significant portion of your income — up to $15,500 — in a 401(k) or 403(b) plan. Those who are self-employed may have the ability to save even larger amounts for retirement in a SEP IRA or I(k). If you can afford to do so, take steps today to put more of your income into your workplace savings plan.

If you are age 50 or older, take advantage of provisions in the law that allow you to make "catch-up" contributions to your retirement savings. In 2008, an additional $5,000 can be deferred into a 401(k) or 403(b) plan if you are age 50 or older.

Be aware of the 'new' definition of kids

The unearned income of certain children is taxable at their parents' top tax rate once it exceeds a specified threshold. For example, in 2008 the first $900 of an affected child's unearned income, such as interest and dividends, is tax free. The next $900 is taxed at the child's tax rate and unearned income over $1,800 is normally taxed at the parents' tax rate.

These rules have generally been applied to children under 18. Beginning in 2008 however, they extend to children age 18 and children age 19 to 23 who are full-time students, unless the child's own earned income provides more than 50% of his or her total financial support. The net effect of this change is that some of the unearned income of any child up to age 23 may now be subject to tax at the parents' marginal tax rate.

Review the tax efficiency of your portfolio

If you have investments in taxable accounts (where any earnings are subject to current taxation), it is smart to assess the tax status of your portfolio. For instance, selling any securities could result in a capital gain or loss. You may want to account for the tax impact of securities sales (stocks, bonds and mutual funds) as you plan your investment strategy. Keep in mind that securities held more than 12 months and sold for a profit are subject to a maximum long-term capital gains rate of 15% through 2010.

By contrast, securities sold for a profit when held one year or less will incur tax at your highest individual income tax rate, usually higher than the long-term capital gains tax rate. However, individuals in the 10% — 15% income tax bracket who sell a security for profit will receive a tax break. Under current law, beginning in 2008 and through 2010, the long-term capital gains tax rate drops to 0% for those in lower tax brackets.

It also makes sense to find out what type of dividend or capital gain distribution you are scheduled to receive from mutual funds you hold. Many funds pay out capital gain distributions (for sales the fund made in its portfolio) late in the year. If any funds you own are scheduled to pay a large capital gain distribution, you need to be prepared for the tax impact. Long-term capital losses taken elsewhere in your portfolio may benefit you from a tax perspective by offsetting some or all of the gains.

Consult your advisor

A meeting with your tax advisor or attorney is important to review your key tax planning strategies and prepare for your 2008 return. Your Ameriprise financial advisor can help you assess how your decisions related to tax matters will impact your overall financial plan. If you don't have a financial advisor, contact us at (800) AMERIPRISE or search for an advisor in your area.