Posted on: Thursday, November 23, 2006
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AKAMAI MONEY
With 2006 coming to an end, take steps to help minimize your taxes
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GOT A QUESTION?
Have a question about money matters. Akamai Money columnist Greg Wiles can try to answer it in the Adver- tiser. Reach him at gwiles@honoluluadvertiser.com or 525-8088.
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AKAMAI ON TV
Greg Wiles discusses financial matters on KHNL News 8 between 5 and 6 a.m. Thursdays.
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Q. What's recommended to get your financial house in order as the year comes to an end?
A. There's a fairly standard set of items that you should look at each year, plus those that are new wrinkles because of tax law changes.
The list of possible to-do items generally revolves around taking steps to minimize taxes, looking at your budget and taking into account any use-it-or-lose-it benefits that will go away by the end of the year.
As for taxes, you can look at ways to minimize capital gains taxes on investments you've sold and check whether you can put more into your retirement plan. Look into your charitable donations, especially if you are taking mandatory distributions from your IRA.
Here's the rundown on some tax-saving measures:
If you had a gain on the sale of stock, you might look at selling another security at a loss. This will lower your capital gains taxes. If you really love the stock with losses, you can repurchase it next year after you wait at least 31 days. That way you'll avoid trouble with federal rules that prohibit taking a gain or a loss on a security that's repurchased within a short period.
Remember the last day for trading this year is Dec. 29. The long-term capital gains tax is 15 percent, while gains on the investments held less than a year is 35 percent, according to Lehman Brothers.
If you are age 70 1/2 and must take mandatory distributions from your IRA, look into new rules effective through 2007 that allow giving directly to a qualified charitable organization. You can give up to $100,000 in this manner. Under the old rules, the distribution would be made to you before it went to the charity. This had some tax implications, said Geal Fukumoto Talbert, a certified financial planner with Legacy Group Hawaii.
Consider giving stock that's appreciated to a charity, Talbert said. The donor can take a deduction for the full appreciated amount and doesn't have to pay a gain on the investment, she said.
Look at opening an IRA account and making a contribution. If you have a 401(k) plan at work, you can donate up to $15,000 a year, or $20,000 if you are 50 or older. If you haven't reached the full 401(k) contribution amount this year, check with your plan administrator on how much you can put in before the end of the year.
If you are a small-business owner, look into changing to a retirement plan that allows a bigger contribution. Talbert said someone switching from a SEP IRA to a 401(k) Safe Harbor with class-allocated profit sharing is the difference between contribution limits of $16,000 versus $44,000.
Check with an advisor if reducing your tax liability will open you up to the Alternate Minimum Tax next year. In general, it's a good idea to do some of your own research on these topics and involve a certified public accountant or financial adviser in these matters.
You might also check into your benefits at work:
If you have a flexible spending account for healthcare, there's a deadline to use up balances by the end of the year or March 15, depending on your plan. If you still have a large balance, you might consider getting a massage or holistic treatment or something that's not typically covered by health insurance, Talbert said.
For budgeting:
You can start with setting a reasonable holiday gift shopping budget and sticking to it.
Try to use up gift cards you've had hanging around since last Christmas or your last birthday.
Keep an eye out for no-interest financing if you decide to make that big holiday purchase of a large plasma-screen television. But keep in mind what that extra debt may do to your credit rating and whether you'll have the funds when the bill comes due.
Review some of ongoing contracts to make sure you're getting the best value. This may include making a few calls to see if your homeowner's insurance is priced competitively. Survey whether going to a telephone-Internet service bundle will save you money.
For senior citizens, be sure to factor into next year's budget an increase in Medicare Part B premiums. For many people, they'll go from $88.50 to $93.50 a month. For others, depending on their income and tax-filing status, they could be as high as $162.10 next year, Talbert said.
She said seniors should also review how much they're paying for Medicare supplemental plans since there are some insurers that don't charge anything for the coverage.
There are tons of other things you can do when it comes to reviewing your tax and financial situation. As mentioned above, it's good to check talk about these ideas with a trusted advisor because everyone's circumstances differ.
akamai on tv
Do you have a question about personal finance, taxes or other money matters? Reach Akamai Money columnist Greg Wiles at 525-8088 or gwiles@honoluluadvertiser.com
