7 ways to save your profits from the tax man

The tax-free exclusion phases out as your income increases. Last year, on a joint return (or a return of a qualifying widow or widower), the phase-out started at $100,650 in modified adjusted gross income and was complete at $130,650. For others, it phased out between $67,100 and $82,100.

For 2009, on a joint return (or a return of a qualifying widow or widower), the phase-out starts at $104,900 in modified adjusted gross income and is complete at $134,900. For others, it phases out between $69,950 and $84,950.

Swap those bonds!

If you still have those long-term bonds you bought at $1,000 face value with interest at 4%, keep an eye out. Sure, the Federal Reserve has cut interest rates. But rates will move up. If they do, that means the market value of your bonds is going down. What to do?

How about selling your bonds and recognizing the loss? That gives you the tax deduction. Now buy similar, but not identical, bonds. Maintain the same maturity, interest rate and level of risk. The price at which you sell the old should be the same as the price of the new.

Nothing has changed with respect to the current value of your portfolio. Your out-of-pocket expense is the transaction cost -- the broker's fees. But you've snatched a tax deduction. And if you hold your bond to maturity, you'll get the full value back from the issuer at maturity. It's a clear win-win.

Deduct those investment expenses

If you itemize your deductions, your investment expenses are deductible as miscellaneous itemized deductions. That means you can deduct the amount that exceeds 2% of your adjusted gross income. The investment expenses may include:

• Investment subscriptions, such as Forbes, Fortune and Barron's.

• Financial newspapers, such as The Wall Street Journal or The Financial Times.

• Long-distance phone calls to your broker.

• Taxi rides to your broker.

• Parking fees when you go to meet with your broker.

• Management fees or even IRA fees if paid from outside the account.

• Investment education such as courses in investing. This can include get-rich seminars.

• Fees for investment advice.

• Safe deposit box expenses.

• Custodial fees.

• Bookkeeping/record-keeping costs to keep track of your investments.

• The cost of investment research.

• The cost of investment books.

• Anything else you can relate to your investments. This can include taking your broker -- or your accountant -- to lunch to discuss your portfolio.

Two final points:

Brokerage commissions aren't deducted as such. They're added to the cost of a buy and deducted from the proceeds of a sell. So, they get "deducted" when you actually sell the security.

Margin interest, to the extent of investment income, is allowed as an "interest" deduction.

Updated June 29, 2009

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