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Bill Keffer's Year End Financial Planning Checklist

Year-End Financial Planning Checklist


        Check income tax withholding: Make sure you are not over- or under-withholding and make any necessary adjustments. 


        Flexible Spending Account: If you have an FSA at work, now is the time to check your balance and the deadline for spending any unused amounts. Make sure you use the money or you may risk forfeiture.


        Medical insurance deductibles: If you have already met your deductible for the year and have other planned procedures pending, consider fitting them into this calendar year to avoid having to pay the deductible portion next year.


        Accelerate deductions: If you are in an unusually high tax bracket this year, consider accelerating payment of such deductible items as state income taxes, real estate taxes, charitable donations, or even mortgage payments that could be made early next year.


        Maximize retirement plan contributions: If you are not on track to make the maximum contribution to our 401(k), 401(b) or other employer plan, explore increasing your remaining deferrals. The maximums for 2009 are in the chart below:



        College savings: Many states, including Illinois, offer a state income tax deduction for contributions to one of the state-sponsored “529” college funding programs. Contributions must be made by December 31stto qualify for the deduction for 2009 taxes.


        Required Minimum Distributions: If you are age 70 ½ or older, you are normally required to take minimum distributions from your tax-deferred retirement accounts by December 31st. If you just reached (or will reach) 70 ½ this year, you would technically have until April 1stof next year to take the distribution. Note, however that there is a special exception for 2009 only in which this year’s required distributions are waived. If you do not need the money, you can reduce taxable income by skipping this year’s withdrawal. 


        Deferral of Income: If you are self-employed and could benefit tax-wise by reducing this year’s taxable income, consider delaying December’s bills to clients until January.


        New retirement plan account: If you are an employer and want to start a qualified retirement plan, it must be established by the end of the tax year. Note that a “qualified plan” is an employer-sponsored retirement plan subject to special requirements of ERISA and the IRS. Examples include 401(k) plans, profit sharing plans, SIMPLE 401(k), and Keogh plans. IRAs, SEP IRAs, and SIMPLE IRAs are not qualified plans and can be established any time up until your business tax filing deadline.


        Rebalance in tax-favored accounts: If it’s time to rebalance your portfolio and it is practical to do so, consider making the needed changes in your tax-favored accounts. 


        Offsetting capital gains and losses: Take stock of your situation by: (1) pulling out Schedule D from last year’s tax return and noting any unused capital losses carried over 2008; (2) checking the statements from you taxable investment accounts for any unrealized gains and losses on the investments in the accounts; and, (3) considering any gains or losses from real estate sales during the year. Next, assess your overall portfolio to identify assets with unrealized gains and or losses. Now, you are in a position to plan the sale of assets resulting in enough gains (losses) to offset taxable losses (gains). 


        Buying and selling mutual funds in taxable accounts: If you are contemplating the purchase or sale of fund shares, be aware the most mutual funds make taxable distributions of dividends and capital gains toward the end of the year. Ideally, you would delay any purchases of new shares until after the taxable distributions have been made. Conversely, if your strategy calls for selling shares, you would be better off tax-wise to execute the transaction before the taxable distributions are made.


        Gifting highly-appreciated assets: If you own investments that have substantial taxable long-term capital gains, considering giving shares to charities, children or others in lower tax brackets. The shares could be gifted instead of or in addition to cash gifts that you may have already planned. When the recipient sells the shares, the gain will be taxed at their lower rate.


        Gift and estate tax reduction: You can give up to $13,000 per recipient ($26,000 for a couple filing jointly) without incurring gift tax. The gift must be completed by year end.


        Paying medical or education bills directly: You can pay the medical or education bills of another person without incurring a taxable gift or dipping into your $1 million lifetime gift tax exemption. The payments must be made directly to the provider by year-end to qualify.


        Stock option exercises: To defer W-2 income, delay the exercise of any non-qualified stock options until next year.


        Big-ticket purchases: Buying such major items as a new car, light truck, or motor home before December 31, 2009 will qualify most taxpayers for a deduction of the state and local taxes on the items. The deduction applies to items costing up to $49,500. Taxpayers with income above $135,000 ($260,000 joint) do not qualify.


        Home energy tax credit: Up to $1,500 of qualifying home improvements qualify for a credit equal to 30% of the cost. Although this credit continues to be available through 2010, the improvements must be made by December 31stto qualify for credit on your 2009 taxes.

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