As the New Year approaches, many of us are enjoying the holiday season by spending time with our family and friends. And with the traveling, holiday parties and other events, financial and tax planning is not at the top of many of our agendas.
But, with just a few weeks left in 2013, now is the perfect time to take a moment and consider some simple ideas to help ring in a more fiscally healthy 2014. Whether it’s tax time next year or retirement in thirty years, here are a few thoughts to consider:
1. Now is the perfect time to review your portfolio to consider whether some sales before year end may be appropriate. If you have realized capital gains during the year, now is a good time to consider taking some capital losses to offset them.
A word of caution though: Be sure to investigate the IRS “wash-sale” rules before making any decisions. If you are sitting on capital losses from this year or carried over from prior years, you can lock in gains up to the amount of your losses with no tax consequences.
You can repurchase the stock immediately if you desire as the “wash sale” rules do not apply when the sale results in a capital gain.
2. Charitable donations are not only a great way to help a not-for-profit organization during the holidays but are also a chance to avoid recognizing the appreciation on your investments in publicly traded securities.
The annual deduction for gifts of appreciated stock is limited to 30 percent of your adjusted gross income, but any balance can be carried forward up to five years.
If you want to make a donation and don’t have a charity in mind, many of the larger brokerage firms as well as locally the Savannah Community Foundation and the Jewish Community Foundation of Savannah, among others, offer donor-advised funds.
This allows a deductible contribution to be made now to recognize the tax benefit in 2013 while giving you time to make grants to worthy causes later.
3. If you’ve already met your annual medical deductible (10 percent of adjusted gross income except for those 65 and older and their spouses whose medical expenses need only exceed 7.5 percent of their adjusted gross income), then medical and prescription drug costs incurred before the end of the year can save taxes on your 2013 return.
Stocking up on prescription medicine, scheduling checkups or maybe having that minor in-office medical procedure may be a good financial choice this month.
4. With the winter months fast approaching, making your home more energy efficient can save you heating costs as well as provide tax deductions. Heating system improvements, insulation, water heaters and windows and doors may provide handy deductions, up to $500 in certain cases.
Remember, these deductions are expected to end in 2013; so take advantage while you can.
5. In addition to maximizing your 2013 401(k) contribution, December is also the time of year when many 401(k) fund changes are made and your current allocations are automatically moved to new, similar funds.
So now is a good time to take a look at your account allocations and also consider rebalancing your portfolio.
If you feel more comfortable talking with a professional, your investment advisor will welcome questions and concerns, and there are great online tools to help you determine the likelihood of reaching your retirement goals based on your current salary deferral percentage, asset allocation and risk tolerance.
6. If you are not eligible for a retirement plan at work, if you are a non-working spouse of someone with earned income or if you simply want to save more for retirement than the 401(k) maximum, you may want to consider a Roth or traditional IRA.
Your tax advisor can help you decide which is the best option for your situation.
7. If you have a child or grandchild, a contribution to Georgia’s 529 plan Path To College can give you a Georgia tax deduction of up to $2,000 per beneficiary.
There is no federal deduction and a contribution to another state’s 529 plan does not qualify. South Carolina taxpayers can deduct 100 percent of the contributions made to the S.C. College Investment Program (“Future Scholar”) or the S.C. Tuition Prepayment Program.
While the ideas above may remind us of a few simple items to consider before the end of the year, it’s always a great idea to keep your tax professionals and financial advisors up to date on the happenings and changes in your life.
Not only can professionals keep you informed on tax expectations, this also allows for more effective planning strategies for 2014 and beyond.
Michael G. Hobbs is a Senior Accountant at Hancock Askew & Co., LLP. He can be reached at 912-234-8243 or mhobbs@hancockaskew.com.