Create a year-end financial checklist
Published 7:52 am Friday, November 28, 2008
Now that we’re in the holiday season, you probably have much to do.
Still, you may find it worthwhile to take on one more task: drawing up a year-end financial checklist.
What should go on your list?
Consider the following:
• Sell your losers. From late 2007 through much of 2008, the stock market has gone through some rough times. Consequently, you may now own some stocks that are worth less than what you originally paid for them. While this fact may not thrill you, there is a bright side: By selling some of your losers, you can offset capital gains you may have realized elsewhere in your portfolio. If you didn’t sell any winning stocks this year—and thus had no capital gains—you can use your losses to reduce up to $3,000 of ordinary income for 2008. And if your losses exceeded $3,000, you can carry them forward indefinitely and use them to offset gains or ordinary income in the future.
• Observe “wash sale” rules. One drawback to selling your losers is that you may have wanted to keep these stocks in your portfolio, despite their decline in value. Can you buy them back? You can—but you need to follow the “wash sale” rules. If you want to claim your loss as a deduction, you can’t buy the same stock during the “wash sale” period—the day of the sale, the 30 days before the sale and the 30 days after the sale. (See your tax adviser for more information on wash sale rules.)
• Put more money into your 401(k).Your 401(k) is a great retirement-savings vehicle—for several reasons. First, you typically contribute pre-tax dollars, so the more you put in, the lower your taxable income. Second, your earnings can grow on a tax-deferred basis. And third, you may have a dozen or more investment choices, so you can build a portfolio that reflects your risk tolerance, time horizon and retirement goals. So, if you haven’t exceeded the contribution limit (which, in 2008, is $15,500, or $20,500 if you’re 50 or older), ask your employer to adjust your remaining paychecks to boost your contribution. Also, if you receive a year-end bonus, see if you can put some or all of it into your 401(k).
• Add to your IRA. You actually have until April 15, 2009, to fully fund your traditional or Roth IRA for 2008, but if you can avoid waiting until the last minute, you might not have to come up with a big lump-sum payment. For the 2008 tax year, you can put up to $5,000 into your IRA, or $6,000 if you’re 50 or older.
• Make charitable contributions. When you contribute to a charitable organization—one that has received 501(c)(3) tax-exempt status—your donations are generally tax-deductible, provided you itemize your tax return. Plus, if you decide to donate a stock or other appreciated asset, you can avoid capital gains taxes when the asset is sold.
If you can check most of these items off your year-end “to do” list, you’ll close out 2008 on a high note—and position yourself for success in 2009 and beyond.