Here's How to Lower Your 2014 Tax Burden on Investments

NEW YORK (TheStreet) -- As we count off the final days of 2014, it might be wise for taxpayers to take last-minute steps now to lower the amount they'll have to fork over to Uncle Sam in April.

Tax-loss selling, charitable donations, and IRA and Roth IRA contributions are among the moves that can shrink that bloated tax bill. But many of these tax-lowering steps must be taken before the ball drops on New Year's Eve.

Must Read: Warren Buffett's Top 10 Dividend Stocks

Taxable accounts need the most scrutiny, said Dan Neiman, partner and portfolio manager at Neiman Funds and investment advisory firm, Independent Solutions Wealth Management, which have more than $400 million in assets under management.

Start by examining the account's short-term and long-term gains and losses for the year.

"Find out what their long-term and short-term capital gains consequences have been for the year so far," he said. "Some people pay attention to those things through the year and some don't."

If there are losses, then this is an opportunity to take profits by selling shares in some high-flying stocks or mutual funds without facing a tax burden. "A lot of people are afraid of the tax consequence, but if you've had a good year and met your goals and have some tax losses, then there's no harm in taking some of those profits," said Neiman.

If the investor is already facing capital gains, then it might be wise to sell some of the duds. For retail investors, this decision is sometimes tough.

Must Read: 12 Stocks Warren Buffett Loves in 2014

"You can't look at something you bought for $60 -- and it's down to $50 -- and try to hold on to it until it goes back to $60" if the fundamentals don't support it, said Neiman. The person must assess the situation objectively: Is it more likely this stock will bounce back 20% in the next year or can I get that kind of gain by investing in another stock or mutual fund? This is where the investor has to look at the stock without emotion and bite the bullet.

If there is potential in the beaten-down stock, then don't sell. Instead, buy more on the cheap. Neiman said he bought Chevron (CVX) at $115 a share in early October and woke up the day after Thanksgiving to see the stock at $108. "There was an opportunity to buy more," he said. "I like the oil stocks as a fundamental value play for their dividend, long-term potential growth in earnings, and low debt -- so when they're off 5 or 6 percent, I'm a buyer."

Also, carry-forward losses from last year can also help to offset gains.

Investors can also use tax-loss selling to rebalance a portfolio heading in to 2015 by selling off the losers and reinvesting the money into stocks and funds that offer more prospective growth. It's critical though that the person assess a stock's potential before selling it.

"You may be missing some upside because of the 30-day wash sale rule," said Neiman. Under the wash sale rule, an investor, who sells a stock to take a loss, cannot buy back that stock for 30 days.

Then there are the tax surprises. Perhaps a year-end bonus comes in higher than expected. Or maybe a mutual fund announces an unexpected year-end capital gains distribution or a company decides to issue a special dividend -- all of which could push the taxpayer up into the next tax bracket. Yikes!

Must Read: 10 Stocks Carl Icahn Loves in 2014

This is particularly common in a bull market, said Neiman. "Any fund that's heavy into tech or any fund that's gone up quite a bit and beaten the market averages, there may be some large capital gains taken in that fund that may cause a big distribution."

Investors can find these potential tax landmines by inquiring about year-end bonuses early and by looking up dividend and capital gains distribution announcements made by each company and fund in their portfolios.

History is not always the best indicator. Some mutual funds, such as Putnam Voyager Fund (PVOYX) and T. Rowe Price Blue Chip Growth Fund (TRBCX) , will be making capital-gains distributions before year-end for the first time in many years. So re-examine this issue each year even if a portfolio has not changed much.

Charitable donations is another tax burner. Donations to registered charities can be done through cash, clothing, furniture, cars or even shares of stock. There are advantages to donating stock that's seen big gains. The donation is credited at the current value, not at the cost-basis level. So, the person enjoys the large donation without having to pay the capital gains on it, said Neiman.

Making contributions to an IRA, Roth or other retirement account is another easy way to lower taxable income. Generally, people have until tax-filing day in April to make the contributions.

Still, Neiman advises people to look at all of these tax steps earlier rather than later.

"Don't wait until Dec. 30," he cautions. "Take a look at the performance now and what they've done for the year, and review your goals and what you're trying to accomplish for years to come."

Must Read: 7 Stocks Warren Buffett Is Selling in 2014

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

TheStreet Ratings team rates CHEVRON CORP as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate CHEVRON CORP (CVX) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its increase in net income, attractive valuation levels and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and a generally disappointing performance in the stock itself."

You can view the full analysis from the report here: CVX Ratings Report

If you liked this article you might like

How to Play the Breakout in Oil

How to Play the Breakout in Oil

Dow, S&P 500 and Nasdaq Rebound as Oracle and Facebook Tumble

Dow, S&P 500 and Nasdaq Rebound as Oracle and Facebook Tumble

Chevron Gains After JPMorgan Says Recent Pullback Means Time to Buy

Chevron Gains After JPMorgan Says Recent Pullback Means Time to Buy

Jim Cramer: Trump's Broadcom Move Really Means 'China, Stay Out!'

Jim Cramer: Trump's Broadcom Move Really Means 'China, Stay Out!'

Dow Soars 440 Points as Strong Jobs Report Fuels Wall Street's Rally

Dow Soars 440 Points as Strong Jobs Report Fuels Wall Street's Rally