Take a bite out of your tax filing

Correction: The Savvy Consumer column Sunday in Work & Money misrepresented William F. Muth, first vice president with Davenport & Co. in Richmond, Va. He said losses from the sale of stock can be used to offset capital gains. Interest and dividends are not recognized as capital gains.

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The turbulent financial market is causing people to shake up their financial portfolios, dump underperforming stocks, adjust retirement funds and sell homes and investment properties. The moves have tax consequences that, if ignored until the end of the year, could cause headaches.

I talked to several tax experts to find out what taxpayers can do now to be ready for the next tax filing season.

Here's what they said:

* If you had a foreclosure, deed-in-lieu of sale, mortgage loan modification or a short-sale, you should be aware of the Mortgage Forgiveness Debt Relief Act of 2007, says Kay Bell, tax expert for Bankrate.com in Austin, Texas. In tax law, the amount of forgiven debt is typically treated as income and is taxed. But to help people who are affected by the mortgage crisis, Congress excluded homeowners whose mortgage debt was forgiven in years 2007, 2008 and 2009. Keep good records, and keep track of the amount that the bank wrote off.

* If you sell stocks this year that result in a loss, familiarize yourself with the "wash sale" rules, says Greg Hicks, CFO and owner of Financial Resource Management in Raleigh. These rules set time limits on when you can sell or repurchase stocks that you sell at a loss. For example, if you sell a stock at a loss and then want to buy it back when the price increases, you may have to wait 30 days to use the initial loss to offset other income.

* If you have a financial loss this year from the sale of stocks or other property, you can use that loss to offset capital gains from interest, dividends or a property sale, said William Muth, first vice president at investment firm Davenport & Co. in Richmond, Va.

If your losses exceed the capital gains, you can apply as much as $3,000 toward ordinary income, Muth says. Any amount of the loss above that limit can be carried forward to future tax returns. So if you had a capital gain of $10,000 and a $15,000 loss, you could offset the gain and apply $3,000 to ordinary income and carry over $2,000.

* Gather records and receipts of work-related expenses that weren't reimbursed, recommends Lee West, owner of M. Lee West in Sanford. Many companies are cutting back on expenses, and as a result, more employees are paying for their own professional training and conventions. If those costs exceed 2 percent of your income, you can deduct them. Suppose you earned $50,000. You could deduct work-related expenses above $1,000. If you attend a convention and spend $2,300 on airfare, hotel, registration and cab fees, you can deduct $1,300.

* If the down economy has led you to open a side business, use a spreadsheet such as Excel or Lotus to summarize all of your income and expenses for the year, says Genevia G. Fulbright, a CPA with the Durham accounting and financial planning firm Fulbright & Fulbright.

Comb through purchase documents such as credit card statements, loan papers and check registers for assets such as business furniture, machinery, office equipment and laptops. You can take depreciation, or if you meet certain requirements, take a direct write-off. Other deductions to look for include fees for tax preparation, business consulting and legal assistance, as well as other expenses directly related to the production of business income, such as mileage, meals and phone charges.