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Get an Early Start on Your Year-End Financial Check Up


It's bad enough that summer has come and gone, much as you hate to think about it, the end of year will be here before you know it. So as the season changes, it's a good time to get a jump start on taking care of financial matters before year-end.

Here's what should top your to-do list.

Max out your 401k

You can make adjustments in the last few paychecks of the year. You should at least get all of the free money you can, so be sure you qualify for employer matching if offered.

Give to charity

Deduct charitable contributions while you still can. “No one knows what the tax laws will look like next year. Chances are, the charitable deduction will survive, but why take a chance?” asks Cal Brown, author of When Life Strikes: Weathering Financial Storms. He advises giving appreciated stock or other assets to avoid capital gains. “The IRA charitable contribution strategy expired last December 31, but it is possible Congress could resurrect that; in 2011 they did on December 10th,” he says.

Give to family

Many estate planning attorneys are advising their clients to take advantage of the very large ($5.12 million) lifetime gift exemption. For the wealthy, this will remove a significant amount from their taxable estates, which will be important if the estate exemption reverts to $1 million next year, says Cal Brown, author of When Life Strikes: Weathering the Storm. Relatively low current property values and potential future appreciation outside your estate make this particularly attractive, says Brown. Family limited partnerships are still a viable strategy, he adds.

What's changed?

Maybe a child was born, you got married or divorced, for example. Make sure all policies, documents and beneficiary designations are correct and up-to-date, says Ron Grensteiner, president of American Equity Investment Life Insurance Company. Review your will, trusts, powers of attorney, advance directives and other important documents.

Organize taxes

Think now about what you will need for the 2013 tax filing season and what steps you can do between now and year end to minimize your tax burden. For starters, says Adam Fayne, a partner with the law firm of Arnstein & Lehr, look at your 2012 income tax return and make a list of information that you will need to gather for next year's income tax return. The sooner this information is received, the sooner you can file and receive your refund if eligible. Think about about ways to reduce your 2013 tax burden. “Max out your 40lk and IRAs to lower your Adjusted Gross Income, and consequently lower the amount of taxes owed,” he says.

Talk now to your CPA about year-end income tax planning. See if your tax advisor believes you would be smart to shift 2013 income to 2014 and deductions from 2014 to 2013, or vice versa, says John Przybylski, director of financial planning at Federal Street Advisors. “Ask your CPA whether he or she anticipates that your tax bracket will be higher in 2013 or 204 (to the extent you know what your income will be in each year). If you will anticipate being in different brackets in the two years, do what you can to move income to the low bracket year and deductions to the higher bracket year (for example, your January mortgage bill, real estate taxes, charitable contributions).”

If your brackets are likely to be the same, consider accelerating deductions to get any tax savings sooner, says Przybylski.

Review benefits

It will soon be benefit election time. Review what you have now in terms of health, dental, vision, life, disability, long term care, flexible spending, for example, so you are prepared when the new information for 2014 is released, says Stephanie Sherman, a certified financial planner with Prudential Financial. Also, if you have a flexible spending account, check your balances to be sure fully use what you have, otherwise you lose the funds, says Timothy Gagnon, a professor at Northeastern University.

Health care benefits are especially worth a good look-see. Ahead of the implementation of the Affordable Care Act, some employers are changing their health insurance plans in anticipation of increased costs.

“UPS recently announced that it would no longer provide health coverage to spouses of non-union workers that are able to obtain insurance through their own employers,” reports ReKeithen Miller, a certified financial planner with Palisades Hudson Financial Group.

Other companies, he says, have increased the fees they charge to cover spouses or raised their employees' share of premiums. “This makes it increasingly important that you understand the changes to your health insurance plans and how it will impact their situation going into 2014. Even if you are not an employee the Affordable Care Act should still be a concern because the mandate for individuals to have health insurance or face penalties is set to go into effect in 2014.”

Truth is, any steps you take now will put you ahead of the game, before distractions like the football season and the holiday season get in the way of your to-do list.

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lou   |     |   Comment #1
This article suggests that the lifetime gift exemption will revert to $1 million next year. This is incorrect. It is a permanent exemption which is also indexed for inflation. I don't see any reason why you should feel any urgency about gifting to your children this year.

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