Five Final Tax-Saving Moves for 2005

Between the last-minute scrambling for undetermined gifts, the extra cars on the road, and the superfluous pressure of making New Year's Eve plans, it's no wonder you're dreaming of springtime in April.

Unfortunately, with April comes your 2005 tax return deadline. But don't allow your tax return to be a big buzz kill. Take a break from the holiday mayhem now and do the following five things so that you can truly enjoy this coming spring.

Lose the Losers

If you haven't done so already, go through your portfolio and evaluate the losers. If a stock is down and you think it's had its day, then dump it, especially if you already have generated other gains throughout the year. You'll need those losses to offset your gains so you can decrease your tax bill.

Then check out your mutual funds' Web sites for capital gain distributions. Mutual funds generally wait until December to make the bulk of their capital gain distributions, says Bob Scharin, editor of Warren, Gorham, & Lamont/RIA's Practical Tax Strategies, a monthly journal written for tax professionals. Remember, those distributions are taxable to you. But, again, if you sell some of your portfolio losers, you can offset the tax bill on those distributions.

Dissect Your Dividends

Check out your dividend situation, reminds Kevin Taylor, a financial adviser with H&R Block Financial Advisors in Overland Park, Kan. S&P 500 companies are expected to pay out a record $200 billion in dividends this year. And while that's good news, you'll be taxed on that money.

But the tax hit might not be so bad. Dividends used to be taxed at the regular ordinary tax rates, which could reach as high as 35%. But back in 2003, the Jobs and Growth Tax Reconciliation Act dropped the rate on "qualified dividends" to 15% (5% for taxpayers in the lowest two tax brackets).