A Year-End Financial To-Do List


With the holiday season coming to a crescendo, boring issues like taxes aren’t the first thing to come to mind. But a few tax maneuvers should be on your holiday list if you want a happy, stress-free April.

Some of 2009’s tax matters can spill over to next year, like making this year’s IRA contributions. But others have to be done by Dec. 31. Here are some of the key ones:

Take tax losses. Sell money-losing investments by the end of the year to offset taxes on investments that were sold at a profit. If you lost more on Ford (Stock Quote: F) than you made on Google (Stock Quote: GOOG), the excess loss can be used to reduce ordinary taxable income by as much as $3,000. That could save you $750 in taxes, assuming a 25% tax bracket. If losses are bigger than that, they can be “carried forward” and used against capital gains or income in future years.

Postpone income. Unless you expect your tax bracket to fall in 2010, it’s better to pay taxes later rather than sooner. If you expect a year-end bonus, or if you bill customers, try to set things up to receive payment after Dec. 31, to postpone tax to next year.

Speed up deductions. By the same token, it’s usually best to take tax deductions as soon as you can. Buy supplies and equipment for your business, or pay January’s property tax bill in December.

Flexible-spending plans. If your employer offers one of these plans for dependent care or medical expenses, you probably have to sign up by the end of the year to get the benefits in 2010. These plans provide an up-front tax deduction on contributions.

Rebalance investments. In shifting money between stocks, bonds and cash to maintain target allocations, consider confining moves to tax-favored accounts like IRAs and 401(k)s. That way, sales will not trigger taxes.

Contribute to your 529 plan. Some states allow deductions for contributions to these college savings plans. To claim a deduction, contribute by year-end. Look up your state at SavingforCollege.com to see if you qualify.

Make tax-free gifts. For 2009, any individual can give up to $13,000 to another, tax free. In fact, you can give that much to as many people as you like, and a couple can double the figure. This option is especially valuable to people who worry they will leave taxable estates, as estate-tax rules are in flux.

Give securities to charity. Rather than selling securities to raise cash for charitable gifts, consider giving the securities themselves. That will allow you to avoid tax on gains that might be realized in a sale, but you’ll still be able to claim a tax deduction on the full value of the donation.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

Show Comments

Back to Top