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Posted: October 23, 2013

A financial year-end to-do list

It'll be 2014 before you know it

James Osborne

Any minute, it will be Halloween, then Thanksgiving, and then the rest of the holiday season will come and go. Suddenly, it’s 2014. Before the year runs out, investors would be wise to consider planning opportunities available to them in areas of charitable giving, deduction planning and tax loss harvesting, among others.

Charitable Giving

A classic year-end planning strategy is to review your charitable giving.  Individuals may want to review their personal tax situation to see if accelerating gifts into this year or deferring gifts into January would be a wise move. Investors with taxable accounts may consider gifting shares of highly appreciated stock to avoid capital gains where appropriate.  Additionally, Congress has extended legislation for 2013 that allows IRA holders who are over age 70.5 and required to make annual distributions to direct those distributions to charity.  This “Qualified Charitable Distribution” up to $100,000 is tax-free to the IRA holder and a wonderful way to maximize charitable giving.

Deduction Planning

Certain taxpayers may find that it can be valuable to itemize deductions on their federal income tax returns every other year, lumping deductions together by pre-paying certain expenses such as property taxes and accelerating charitable distributions as described above.  Discuss with your tax professional if flexibility in paying certain deductible expenses can be of use to you in 2013.

College Funding

In Colorado, taxpayers are entitled to a 100 percent state income tax deduction for contributions made to a state sponsored 529 college savings plan.  You do not have to be the owner of the 529 account nor related to the account beneficiary to take advantage of the tax deduction.  Year-end can also be a great time to use Colorado’s pass-through “loophole” to pay tuition due for the spring semester.

Tax Loss Harvesting

Quite frankly, earlier this year was a better time for investors to be looking for tax losses in their portfolios. Today, U.S. stocks are up double-digits for the year and it is unlikely that many investors have losses to capture in that market.  However, some bond sectors have seen losses this year, and other market sectors may also be showing losses.  Tax loss harvesting is a no-brainer for investors. Realized losses can be used to offset any potential gains in the current year, can be carried forward indefinitely to offset future gains, and investors can use $3,000 of realized losses to offset any ordinary income each calendar year.  Tax loss harvesting creates tax deferral, giving investors more time with their own money before they cut in the IRS.

Health Insurance

The Affordable Care Act (aka Obamacare) is here, and coverage kicks in Jan. 1. Primarily affected will be the previously uninsured, self-employed individuals and early retirees.  If you fit into one of these categories, the open enrollment period for privately available policies on the exchanges for 2014 continues until March 31. Colorado opted to run its own insurance exchange, where you can compare and shop for coverage.  You can still purchase private health insurance outside of the exchange, but the exchange is the only place where those eligible for tax subsidies will be able to receive them.  Qualification for subsidized insurance for 2014 is based on a taxpayer’s 2012 Modified Adjusted Gross Income.

Don’t find yourself next January wondering what you could have done this year to improve your financial situation. A few short hours reviewing these items will be time well spent.

James Osborne is a Certified Financial Planner ® professional and President of Bason Asset Management, a Lakewood-based Registered Investment Advisor. He has spent his career in the investment management industry, helping clients manage their portfolios and plan for retirement, legacy and lifetime goals. In addition to the CFP ® professional designation, he has an MBA in Investment Management from the University of Colorado. James has previously instructed CPE courses for the Colorado Society of CPAs. Contact James at james@basonasset.com and learn more at http://www.basonasset.com.

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