Year End Tax Planning

By Jon Flynn

It’s usually a pretty busy time for people between Thanksgiving and Christmas with the holidays and all.  However, as busy as we are with non-financial matters, I still like to remind people that tax season is right around the corner.  So in between filling up on Turkey and getting ready for Santa, try to take some time out to look at the following items that need to be done by December 31st:

Required Minimum Distribution (RMD):  If you have turned age 70 ½ this year and have a tax-deferred retirement account keep this in mind – it’s pay back time.  The IRS requires that you take a mandatory withdrawal from certain retirement accounts.  Accounts such as IRA’s, SEP’s and SIMPLE’s, as well as certain employer-sponsored plans qualify.  So if this applies to you, be sure to talk to your accountant or financial advisor, because the penalty is very stiff for those that don’t comply by the deadline. 

Tax Loss Harvesting:  It has been a wild year in the stock and bond markets.  Many investments have soured, even crashed and burned.  Be sure to look through your portfolio and formally book any gains or losses that may help your tax situation.  Many people are aware that they can offset capital losses dollar-for-dollar against most capital gains.  But many aren’t aware that they can deduct up to $3,000 in capital losses each year against their taxable income. What if your losses are greater than $3,000 for the year?  Luckily, you can carry them forward and use them to reduce your taxes in future years

Gifting:  People are allowed to gift up to a certain amount away per calendar year to any single person without having to file a gift tax return.  In 2008, the amount is $12,000.  The amount you gift isn’t a deduction on your 2008 return, but rather removes this amount from your gross estate.  Reducing the value of your estate can possibly save your heirs quite a bit of inheritance taxes when you eventually pass away.  By the way, if you’re married, each spouse can make the maximum gift.  For example, a married couple that each gifts $12,000 to each of their three children can effectively remove $72,000 (2 spouses x $12,000 x 3 children) from their estate.  So be sure to get your gifts in by year-end. 

Everybody situation is different and arriving at solutions can get complicated.  So always consult with financial, legal, and tax professionals before making any decisions.

Jon Flynn is a Certified Financial Planner ^TM and owner of Flynn Financial in Eynon. He is a Representative of Securities America, Inc., Member FINRA/SIPC and of Securities America Advisors, Inc. Flynn Financial and Securities America are unaffiliated.   Mr. Flynn can be reached at 570-876-5015.