Sunday, October 22, 2006

October is Tax Time

I knew a guy who sold his business at a big profit. A few months later (the following year) he was pretty upset. He had so much capital gains from the sale, that it threw him into owing the Alternative Minimum Tax (AMT). Normally long-term capital gains are taxed at a lower rate than ordinary income, but he lost much of that tax benefit.

To make matters worse, he said he had some stock that had gone down. If he had sold that stock before the end of the prior year, and taken the loss, it would have offset a lot of the profits from his business, and avoided the AMT! As I said, he was pretty upset that he had missed that opportunity. Selling the stock later would still get him a deduction, but it wouldn't be worth nearly as much. He had paid a lot more taxes than he should have, and there was no chance of getting it back.

Another guy in the same conversation, who was an accountant, then said words I'll never forget:

"A lot of people think April is tax time. They're wrong. October is tax time."

"That's when you need to take stock of what your tax situation is going to look like, and take steps to solve any problems before year-end, while you still have a chance."

There you have it. October is right now, so get to it.


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