Thanksgiving is almost here, and year-end is approaching faster than most of us can believe. Before holiday chaos sets in, it’s time to do a 7-step check-up of your finances.
1. Review your mutual fund investments. Do you need to rebalance your portfolio because the value of your various allocations no longer matches your targets? If you’re retired and you’re living on income from your investments, think about pulling money out into cash as you rebalance so that you don’t have to make additional transactions in 2007. If you’re planning to buy mutual funds, watch for the capital gains and interest distributions that are expected at the end of the year. Don’t buy just before these investments or distributions are made.
2. Harvest investment capital gains. If you’ve got a few investments that have lost money, match them up with those that have done well. Harvest your capital gains to save taxes before year-end.
3. Double-check your tax withholding. If you’ve worked more than one job, had part of the year off, refinanced your house, done any of the things that show up differently on your tax return go back and double check your tax withholding. You don’t want a large tax refund in April, nor do you want to owe a lot either. Check the IRS website to access the withholding calculator. Use this tool to assess whether your 2007 withholding is correct.
4. Prepay real estate taxes. If you’re not subject to Alternative Minimum Tax, try to transfer some expenses into 2007 and some income into 2008. If you’re self-employed, send out invoices so your payments are received in 2008. Whether you’re self-employed or not, paying things like real estate taxes and state income taxes in 2007 will make them deductible on your 2007 tax return, but you must pay them before year-end. If you’re subject to Alternative Minimum Tax, talk to your tax advisor. This may actually cause you to pay more AMT than expected.
5. If you’re retired and over age 70 ½, take your IRA distribution before the end of the year. If you turn 70 1/2 this year, you don’t have to take your first distribution until April 1, 2008, but then you’ll need to take your 2008 distribution before the end of that year. Save some tax money by taking your distribution now before the end of 2007 and then you’ll only have one distribution to take before the end of 2008. The investment company holding your IRA will help you calculate the amount of required distribution.
6. Make your charitable gifts. Charitable gifts need to be made and completed before the end of 2007, meaning that the check must be postmarked by year-end to count toward your 2007 tax return. If your favorite charity is your friends and family, remember you can donate up to $12,000 per person. That means a married couple giving to a married couple can contribute up to $48,000 before the end of 2007.
7. Although there’s no year-end deadline involved, check your credit report as part of your overall financial review. Go to www.annualcreditreport.com and make sure that there’s no fraudulent or incorrect information on your credit report. Read the portion of the report that details how you may correct any errors.
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