Dodge the Loopholes but Lower Your Tax

Many mutual fund families now offer "tax-managed" funds in which the managers try to do things such as match up sales of winners with sales of losers to minimize any taxable gain.

Index funds are also useful. They trade little -- typically only when a company's stock is added to or deleted from the index -- so you have a big capital gain only when you sell, allowing you more flexibility in recognizing capital gains and paying tax on them.

A similar benefit applies to a buy-and-hold approach to stock investing. It's not easy to time the market, of course, but you can time your taxes somewhat, such as by selling winners and losers together so gains offset losses.

3. Take the AMT into account .

This tax is capable of inflicting a nasty April surprise, and in many cases, there's not much you can do. But by structuring your finances with the AMT in mind, you may be able to ease the bite.

In simple terms, the AMT is sort of a flat tax (only two brackets, 26 and 28 percent), with a lot fewer deductions than the regular tax and a big de facto standard deduction (called the exclusion amount). You compute your taxes both ways and pay whichever is higher.

But there are a few twists. Nominally, capital gains are taxed at a maximum of 15 percent, AMT or not, but under certain circumstances, a big capital gain can result in seeing more of your other income exposed to the AMT. So if you are contemplating selling a large asset, such as a house, talk to your tax adviser first. This may be one situation where an installment sale -- letting the buyer pay over time -- may be advantageous. Or you may wish to postpone closing into a later year.

There are also special rules for tax-exempt bonds. "General obligation" bonds are exempt from both regular tax and the AMT, but "private activity" bonds, such as industrial revenue bonds, are subject to the AMT. So if you're being hit by the AMT, be careful what you buy.

Mortgage interest on a refinancing that is not used to buy, build or improve your home is also subject to the AMT. Under the regular tax, you can pull up to $100,000 out of your home in a re-fi and the interest is deductible.

Personal exemptions are disallowed under the AMT, so getting the chicks out of the nest can help. Also, if they are independent, they may be able to qualify for other benefits, such as the various tuition tax credits.

Finally, if you're thinking of moving, check the tax rates in the destinations you're contemplating. State and local taxes aren't deductible under the AMT, which reduces or wipes out the subsidy that the regular federal tax provides to high-tax jurisdictions such as the District.

Texas, anyone?

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The number of millionaire households -- defined as those with net worth of $1 million or more -- jumped 800,000 last year to 8.3 million, according to a survey by the Spectrem Group, a Chicago consulting firm. "Ultra High Net Worth" households, those with a net worth of $5 million or more, surged 26 percent in 2005, to 930,000, the survey found. "It's been a great couple of years for America's millionaires," said Spectrem Managing Director Catherine S. McBreen. The figures are for assets minus liabilities and exclude the value of the primary residence.

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Desperate taxpayers? On April 17, the tax-filing deadline in most of the country, there were 3,385,936 visits to the IRS's Web site, http://www.irs.gov , topping the record of 3,337,300 visits set April 15, 2005.