2011 will soon be in the rear view mirror. While many have focused on world events that cause uncertainty in economic markets there are things that you can do to help your personal financial situation.
In fact, there are several items financial advisors recommend their clients attend to before the end of the year. As a note, you should always consult a qualified tax advisor before making any changes.
The first suggestion I would make is that people take a long, hard look at their investment portfolios and decide what to do about investments that they hold which are currently at a loss. As long as the position remains unsold it is an unrealized loss. By going ahead and selling the security they can realize the loss and use it to offset any capital gains or dividends that they may have that year. In addition, if their losses exceed their gains they can use $3,000 of the excess to reduce their income on their current year tax return. If losses exceed $3,000 they can be carried over to offset income in future years.
If you feel that the investment you sold still has long term potential you can buy back the same investment, but make sure to wait at least 31 days before you buy to avoid the “wash sale” rules which would delay your ability to utilize the loss on your taxes.
If you happen to be in the lucky position of owning securities which have appreciated in value, and you’re feeling charitable, you may consider donating the security rather than cash. The rules can be a bit complex, but generally speaking if you are contributing securities you have held over a year and a day and are making the contribution to a qualified, public charity you can deduct the fair market value of the security on the day you make the contribution. If you instead sold the stock and made a charitable contribution, you would have to pay capital gains tax on any appreciation.
Another tip would be making a contribution to the Colorado 529 before December 31st if you are saving for the education of a future college student. You can deduct the entire amount of the contribution from your Colorado state taxable income. If you are opening a new 529 plan account, make sure it is a Colorado 529 as contributions to another state’s 529 plan account will not be eligible for a Colorado state tax deduction. You can learn more about Colorado’s program at www.collegeinvest.org.
While this is not an exhaustive list, it should get you started as you wind down the year. Good luck and enjoy the holidays!
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