When you hear year-end tax planning, when do you think that planning should occur? Many people are under the misconception that you can wait until December to start planning your finances for the tax year—this is absolutely not the case!
Year-End Tax Planning
December 31st is the cutoff date to make any tax moves for the current filing year. This means that you need to plan well before the deadline, so that your finances are all sorted out in time for you to make decisions by the end of the year. Here are 10 tips to help investors with their year-end tax planning strategies.
1. Meet with Your CPA
Be sure to prioritize meeting with your CPA, because before you know it, December will be upon us. When you meet with your advisor, have a list of questions prepared so that you can optimize the time spent together, ensuring that you leave well-informed to make decisions about your year-end tax planning.
2. Harvest Your Losses
Have you been sitting on an investment that just isn't performing up to par? If you've lost money on an investment, now is the time to “realize” or “harvest” those losses, and use the losses to offset capital gains or to reduce regular income.
3. Check Your Insurance Coverage Options
For those who partake in employer insurance coverage, we’re quickly approaching the open enrollment period; use this time to review your current coverage, and other options that your company may offer, to make sure you’re getting the best benefits possible.
4. Use It or Lose It...or Maybe Not?
If you have a flexible spending account for medical expenses through your benefits plan, it’s possible that unused funds may roll over from year to year. Be sure to review your coverage to figure out if you’re entitled to such a grace period.
5. Maximize Your 401(k) Options
How much does your employer match in your 401(k) plan? It’s important to take the maximum advantage of your 401(k) and IRAs. Speak with your CPA about how you can keep as much of your money as possible to save for your retirement.
6. Deductions from Charity Donations
There are certain tax forms to file to claim charitable contributions, and a schedule to which you should keep in order for those deductions to apply to your 2013 year-end tax planning. Your CPA can give you all the information you need to make sure you get the maximum deduction in return for your donation.
7. Maintain and Balance Your Portfolio
It’s fiscally irresponsible to just set your balance and forget it exists. Depending on your financial situation, the investment choices you make may change, so it’s important to regularly adjust your portfolio. Allocating funds differently within your portfolio ensures that your money will its best for you according to your current needs.
8. Assess Your Insurance Coverage
When was the last time you reviewed your auto, home, health, or life insurance policies? Staying on top of your coverage and rates is important to make sure you’re getting what you need at the lowest price. Regularly checking that you’re getting the best rates, and making changes when necessary, can save you a lot of money over time.
9. Have You Planned a Budget?
Work with a professional to find a budget plan that works for you. Although they’re something that people often avoid putting together, having a budget is vital to your financial success. Having something set to monitor your expenses will allow you to see where your money comes from, how much is there, and where it is going.
10. Update Your Beneficiary Information
Making an error on your beneficiary forms can be incredibly costly, and happens all too often. When people set up their IRAs and 401(k)s, the information they initially provide for listing beneficiaries may not be permanent. If you've listed your spouse as a beneficiary of your plan, and then you get divorced, by not updating your plan information you may accidentally wind up leaving your assets to your ex. Additionally, failing to update your documents to list any new children you may have, or other beneficiaries, will deny them their rightful inheritances in the future.