End of Year Personal Finance Tips
As the year end approaches, Janet Tighe, a Senior Financial Planner for Mintz Levin Financial Advisors, provides the following tax, budgeting and investing tips for keeping personal finances on track.
Taxes
o Take any losses on investments in your non-retirement accounts.
o Avoid purchasing a mutual fund in a non-retirement account just before it makes its annual capital gains distribution - many of which are in December. You will be taxed on these gains immediately, without having benefited from the fund's appreciation.
o If you itemize your deductions on your tax return, try to estimate your tax situation to see if extra deductions will be helpful this year. For example:
Make an extra mortgage payment - it is an additional interest and real estate tax deduction. Pay estimated state taxes that are due January 15th in December. Consider any donations to charity, especially appreciated securities or non-cash donations. Tax deductions may be applicable for some significant medical expenses that are not covered by insurance. If necessary, accelerate some of the expense into this year to get the benefit - anything over 7.5% of your adjusted gross income may be deductible.
o If you fall into the Alternative Minimum Tax (AMT) some deductions will not be allowed and shouldn't be accelerated.
o Add more funds to your 401(k) plan if you haven't maxed out your contribution for 2006 to reduce your income.
o Consider contributing to a traditional IRA or a ROTH IRA; contributions to a traditional IRA are deductible up to certain income levels, but non-deductible contributions to a Traditional IRA will grow tax-deferred; in a ROTH IRA, the money grows tax-free.
o Tax credits may be available for energy-efficient home improvements made during 2006 or for purchasing certain hybrid fuels or alternative fuel vehicles.
Budgeting
o Consider coming up with a budget for your holiday spending and stick to it.
o Pay cash whenever possible for gifts - don't run up credit card balances, especially if you already have a balance that you're paying off monthly. If you do add to your credit card balance, aim to pay off the new amount you charged for the holidays in addition to any minimum payment you're required to make.
Other Items
o If you have Medical or Dependent Care Spending accounts through your employer, check to make sure you have spent at least the amount you are having deducted from your pay. If not, find ways to spend it this year or you may lose it. For example, purchase new prescription glasses or find out which over the counter medicines apply.
o If you're in a position to make gifts to your family, you can give up to $12,000 in 2006 to any family member without any tax consequence to reduce your estate. If the recipient is in a lower tax bracket, you can give appreciated stock or funds, which may allow them to pay lower taxes on the gain.
o If you're over 70 ½ and have money in IRAs or 401(k) plans, you need to make sure you take your minimum required distribution before year end or you may be penalized by the IRS.
About the Author
Janet is a Senior Financial Planner for Mintz Levin Financial Advisors, LLC, which was founded in October 1998 to provide financial planning and investment advisory services to individuals and families. Mintz Levin Financial Advisors counsel clients on asset allocation and investment strategies and offer comprehensive, customized investment advisory and financial planning services.
Janet has extensive experience with investment management products and developing asset allocation proposals for high net worth clients. She has a wide range of bank managerial experience. She led a unit to provide technical and analytical support to investment sales managers for the sales of investment portfolios. Janet also developed a tracking mechanism for $1 billion of investment management product sales. Janet earned her B.S. summa cum laude, from Rider University (1978), and her M.B.A. from Stern School of Business (1983). She is a CERTIFIED FINANCIAL PLANNER " certificant and is a member of the Financial Planning Association.
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