With the end of the year clearly in sight, our attention turns to turkey, eggnog and, for many... taxes. So, with that in mind, here are a few things you may want to consider.

For those individuals who participate in markets, you may have realized losses in previous years. Now is a very good time to review your portfolios to determine if you have any unrealized gains and if so, you might want to take some of those gains and use the previous losses to offset any capital gains tax liability you might incur as a result of taking those gains.

Capital gains can be 100 percent offset to the extent of capital losses. Remember also that capital losses can be applied to all sorts of gains — it’s not just stock or bond losses applied to stock or bond gains. You can apply, for example, real estate losses (yes, believe it or not, there actually is such a thing) to bond gains or stock losses to say, gains made from the sale of valuable artwork. Even if you have no gains or are not interested in taking any gains, recall that you can still use up to $3,000 of losses to offset an equal amount of income. Any losses over $3,000 can be carried forward for use in the future.

The deferral/contribution limits for retirement plans may have changed, both company provided as well as individual. You should check to see if these limits have changed for your specific situation. Note that for those individuals attaining age 50 in 2003, there is a “catch-up” provision provided that allows you to contribute more than what is the normal contribution limit. Some of the deferral/ contribution limits for 2003 are:

• Traditional and Roth IRA: $3,000 per working individual or $6,000 for working Individual plus non-working spouse. $500 additional If individual is age 50 or older.
• Simple IRA: Employees can defer up to $8,000 ($9,000 if age 50 or older).
• 401(k): Employees can defer up to $12,000 ($14,000 if age 50 or older). Total deferral and employer contributions can’t exceed 100 percent of salary up to $40,000 ($42,000 if age 50 or older).

   Incidentally, do you have a Roth IRA where the total contributions are MORE than the current value? If so, you may be able to “close out” the Roth IRA and claim the loss (total contributions minus total distributions equal the loss) as a deduction. Even if you are under age 59 — you may still be able to do this WITHOUT incurring a 10 percent penalty or paying taxes on the withdrawal. However, the deduction is allowed only as a miscellaneous itemized deduction meaning that the loss has to be greater than a fraction of your Adjusted Gross Income (AGI) to make it worthwhile.

Many people pay quarterly estimated taxes. As such, now is a great time to take a look at what you have paid and calculate what you think you’ll need to finish off the year. The reason this is so important right now is that, even though Congress passed and the President signed into law, the Tax Reform Act of 2003 in May of this year (formally titled the Jobs and Growth Tax Relief Reconciliation Act of 2003), the new marginal tax rates set forth in the legislation are retroactive to January of 2003.

That means many people may have paid more than what is now actually required. For example, if you had been figuring your taxes based on a 27 percent marginal tax rate, you would probably have paid too much since there is no 27 percent tax bracket for 2003. Many of the people who thought they were in the 27 percent tax bracket are actually in the 25 percent or maybe even the 15 percent bracket. The new tax rates for ordinary income for 2003 are: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent.

Finally, I’ll mention something with a little bit of get-up-and-go. If you are thinking of buying a new car take a look at one of the new “hybrid” gas-electric vehicles that are currently on the market. You’ll not only save significant coin on fuel over time but will give the environment a helping hand as well. AND, of course, you’ll qualify for a tax deduction!

That’s right. The IRS has determined that purchasers of a new Honda Insight, Honda Civic Hybrid or Toyota Prius (and I’m not a car salesman so don’t blame me for the determinations) are eligible for a “Clean Fuel” vehicle tax deduction of $2,000 in 2003 which can be taken regardless of whether you itemize or not. But, you better hurry up because this deduction is to be phased out in 2004-2006.

(Editor’s Note: Justin Freed is Certified Financial Planner with Merrill Lynch. He may be reached at jwfreed@prodigy.net.).