Or “your tax guy is not your planner*”. Last month, I posted on Year End Planning and offered a couple thoughts for issues that need to be addressed before 12/31. As I thought more on this topic, it occurred to me that many people use a paid tax preparer, and while I have no issue with this, keep in mind that unless you have a November visit with your tax guy or planner, you will find that most things you might have done to optimize your finances have passed the 12/31 deadline. I mentioned charitable donations, specifically, that 2007 is the last year you may opt to donate money directly from your IRA if you are over 70-1/2. I also discussed converting some of your IRA to a Roth.
This is also the time to make sure you’ve taken the RMDs (required minimum distributions) from your IRA if you are 70-1/2 this year.
Also to think about at year end, is to review your portfolio and determine whether any rebalancing would be appropriate. I am a believer in long term investing, but a regular look at your portfolio composition is important. For the working investor, you may choose to balance as you go, making new purchases to keep each asset class at its targeted level, or for the retiree, to take withdrawals from the class which has become overweighted.
Tallying up your gains and losses for year can also help. Say you have a short term gain of $5000, which would be taxed at your standard rate (the same tax bracket as ordinary income). You may find a stock you are holding onto at enough of a loss to offset that gain. If you still wish to own that loser, you can either double up, more than 30 days prior to the sale, or buy it back 30 days after the sale, to avoid wash sale rule disqualification.
Your employer is probably advising you that any changes to your Flexible spending account and Dependant care account are due shortly. If you participate, go do the math. If not, review the details of these two programs, as the savings can really add up.
This is a good time to evaluate your 401(k) and IRA savings level. I read that 20% of people with access to a 401(k) do not deposit enough to capture the matching funds. I view that as money down the drain.
(As always, I welcome all comments, and suggestions if I’ve missed any key points)
*well, he may be. My point is just that there are a number of decisions to make well before you bring your box of statements to the tax man.