When it comes to any type of tax planning, the basic premise is this: Keep your taxes to the bare minimum and keep more money in your pocket. To make that goal a reality takes some planning on your part, best done in conjunction with your accountant or financial advisor. Remember, though, that while tax avoidance (i.e. minimizing your tax bill by every legal means) is legal, tax evasion is not.

While the current U.S. tax code allows for plenty of tax shelters, which are ways to protect your wealth from current taxation, there are lots of illegal tax shelters out there, and the IRS uses its best people to track them down. Legal tax shelters include common things like your house and your retirement account, and also more sophisticated holdings like certain oil and gas investments and specialized techniques.

Measuring Gains and Losses

One part of tax planning is assessing where you stand on the gain/loss scale. If your investment losses exceed your gains, you can take small comfort in the fact that you've trimmed your tax bill. If you've scored a lot of gains throughout the year, though, you could get hit with a whopping tax bill — and that's where one key planning strategy comes into play.

October is the time to look at your holdings with an eye toward your tax bill. If you've been holding on to some losers, hoping they might turn around, you'll have a couple of months to sell them and at least reap a tax advantage. Every loss you incur helps offset the gains you've earned, and lower gains means a lower tax bill.

If you have racked up a large net loss, consider cashing in some investments that are currently showing large paper gains. The reason? Selling those investments now locks in the gains, and lets you keep more of that hard-earned profit. Your current existing losses will offset your gains, which allows you to realize those gains while legally avoiding the taxes you would otherwise have to pay.

That's great tax advice, but don't act impulsively. Keep in mind that tax consequences are like a side salad compared to the investments that comprise the meat and potatoes of your lifelong investment portfolio.

Know Your Holding Period

Your capital gains tax rate varies based on how long you've had the investment; that time period is officially known as your holding period. The rules are fairly straightforward. If you've held the investment for more than one year before selling, you've got a long-term capital gain (and, therefore, a lower tax rate). Investments held for one year or less are considered short term. So if you bought Stock XYZ on January 11, 2007, and sold it on January 11, 2008, you had a short-term capital gain. But if you waited the extra day and sold on January 12, 2008, you lowered the tax bill by transforming the trade into a long-term capital gains transaction.

How to Benefit from Deductions

Are investment-related expenses tax deductible? You bet. From phone calls to your broker to dividend redistribution plan charges, you can deduct in quite a few areas. In fact, many costs associated with helping you invest that produce taxable income are tax deductible (though expenses related to tax-free income, like the interest from municipal bonds, can't be deducted). Here are some expenses you may not have realized are deductible: