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Investors' calendars say it's tax planning time

As 1992 heads into its final months, financial advisers are sounding an alert: Prime time has arrived for year-end investment tax planning.

To some investors in stocks, bonds or mutual funds, it may seem a little early to be worrying about any moves to minimize the bill that ultimately comes due to Uncle Sam.

Furthermore, there's a natural temptation this time around to wait for the results of the presidential election to see what the future might hold for the tax system.

But analysts say those factors are no reason to put off considering all the options, some of which already may be losing some of their potential benefit.

"The best tax planning is planning that is done year-round," says Richard Shapiro, tax partner at the accounting firm of Grant Thornton in New York.

"In the 1992 presidential campaign, tax policy is a very high-profile item," he adds.

"Would income tax rates on "wealthy' taxpayers increase in a Clinton administration with a Democratic Congress? Would capital gain rates be lowered in a second Bush administration?

"Clearly, uncertainties raised by the election process should not be ignored in addressing 1992 year-end tax planning. But even after Nov. 3 it is safe to assume that these uncertainties will not all be resolved."

As an example of a planning strategy with diminishing allure, analysts cite the idea of investing in a money-market security that pays interest in a lump sum at maturity some time after Jan. 1.

"Consider taking your money out of a money-market account and putting it in a Treasury bill or bank CD maturing in 1993," suggests Tom Ross, a financial services partner at the Coopers & Lybrand accountanting firm.

"The interest earned in 1992 won't be taxed until 1993, provided the maturity is not longer than one year."

Veterans of the game also urge giving early attention to matching up paper gains and losses among investments you own now against any profits or losses realized so far during the year.

The usual aim of this exercise is to lower any net taxable gain as much as possible or to record losses that permit you to deduct as much as $3,000 per year against your other income.

In order to comply with rules regarding "wash sales," or transactions that aren't considered authentic for tax purposes, action to nail down a loss on a security in which you want to reinvest must sometimes be taken at least a month before year's end.

Advisers also suggest checking how much interest or dividends children are earning in, say, custodial accounts used to save for their college tuitions.

"For children under 14," the brokerage firm of Shearson Lehman Brothers points out, "unearned income up to $1,200 receives favorable tax treatment, so parents can reduce their own tax liability by transferring some assets to their children."

In a special situation applying to mutual-fund investors, advisers caution against putting new money into a fund just before it makes a year-end capital gains distribution. When such distributions take place, they become taxable income. So investors who buy just before a payout can wind up effectively getting some of their money back almost immediately, with a tax bill attached.

Counsels the Vanguard Advisor, a newsletter aimed at shareholders of the Vanguard family of funds: "Keep an eye on the distribution calendar so you don't "buy a dividend.'