It's time to complete your end-of-year financial planning

Personal Finances column
By: Paul Apfel
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With only three months remaining in 2011, you’re running out of time to complete your end-of-year financial planning. So let’s get started. Don’t forget that extension ... Look first at your tax situation. If you received an extension of time to file your 2010 tax return, be sure you file it not later than Oct. 15, 2011, said California Registered Tax Preparer Tom Bauer. “It’s easy to overlook at this time of year.” Seniors and that MRD ... For our senior readers, if you are 70 years and 6 months old or older and you have traditional IRA accounts, you need to take your minimum required distributions (MRD) by the end of the year if you have not already done so this year. Bauer pointed out that the penalties for failing to take this distribution are severe – a 50 percent penalty for the required amount not taken. A few exceptions apply and you should contact your tax professional to see if you qualify. Accelerate your expenses ... If you itemize deductions, it may be advisable to accelerate expenses this year to reduce your tax bill next April. For example, you can pay the second installment of your real property taxes - due in April 2012 - before the end of 2011 and claim a deduction on your 2011 taxes. You can also make an extra mortgage payment or make your January payment before the end of December to increase your deductible housing interest. Donations ... Don’t wait until December to make the rest of your annual charitable contributions. Spread your giving over the next few months rather than panicking at the end of the year. And if your house is cluttered but you dread the thought of a garage sale, save taxes and time by donating the stuff to your favorite charity. USAA Certified Financial Planner Scott Halliwell advised that record-keeping is important. “Get a receipt from the charity that includes the organization’s name, the date and location of the contribution and a description of what you donated,” Halliwell said. “If you contribute property worth more than $5,000, you’ll need an appraisal.” IRS publications 526 and 561 have the details. Reduce taxable income ... You have until next April to fund an IRA, including a SEP-IRA for the self-employed for 2011, but you only have until the end of this year to fund your 401(K) or other employer-sponsored retirement account, according to Halliwell. If you think you might come up just shy of the limit - $16,500 - “consider stepping up your contributions immediately,” Halliwell said. Contributions don’t have to be spread evenly over the year so you can increase your contributions in the last months of the year. Halliwell continued. “That’s especially important to remember if you’ll be receiving a bonus before the end of the year,” Halliwell said. Because some employers cap retirement plan contribution amounts, the USAA planner advised, you should check with your human-resources department. If you set up a flexible spending account earlier this year, be sure you plan to spend all of it by the end of 2011. Any funds unspent and remaining in the account will be lost. Think green ... While the tax credits for energy-efficient home improvements are less this year than last, you can still recover some costs for certain heating and air conditioning systems, water heaters, windows, doors and roofing. But, the enhancements must be for the home you own and use as your principal residence. New construction and rentals do not qualify. Bauer urged that you check with your tax professional before signing any contracts to see if you’re eligible. More on energy credits is available online at These credits end on Dec. 31, 2011 so you need to act quickly. If you have a business ... “For businesses, make sure your W-9s are up to date for the vendors that need 1099s,” advised Lincoln CPA Jennifer Jensen. “It gets harder as you get closer to the end of the year.” Jensen recommended that business owners get a W-9 completed before giving vendors their check. “Otherwise, they have no motivation to get it back to you.” Social Security savings ... The federal government reduced the social security tax rate by 2 percent this year, reminded Helliwell. But, he cautioned, “since this break is currently scheduled to vanish on Dec. 31, your take-home pay could dip in January.” To soften that blow, Helliwell suggested “taking those funds out of your spending right now, if you haven’t already made the adjustment.” Helliwell provided an example: take 2 percent of the gross amount of each paycheck and put it in a savings account. If your gross pay is $2,000, you would set aside $40. So, if the current tax break isn’t extended, you’ll be used to living without the spending money and you’ll have added to your savings. But, if you can’t afford to take the savings for the next three months, at least you’ll have a heads-up that your net income in January could be less. So you can plan your spending for 2012 with that in mind. Estate planning issues ... Lincoln estate planning attorney Therese Adams told us her firm has been busy this year with numerous estate and trust administration cases. She noted that out-of-date or poorly drafted trusts are particularly troublesome and expensive for surviving spouses. For couples with living trusts, Adams identified two potential problems as AB or bypass trusts and couples with blended families. “Blended family dynamics are tricky”, according to Adams. “Relationships change and a person named as successor trustee could have been just fine 10 years ago, but now has lost their jobs, filed for bankruptcy and lost their homes. Not the best candidate for a successor trustee.” Although she deals with other issues such as special-needs trusts and competency issues, Adams said, the trust and blended families items occupy much of her daily activity. The message for couples with trusts is clear: ensure the document is up-to-date and properly written, and do so while both parties are still competent to make needed changes. Investments ... Review your asset allocations, risk tolerance and long-term goals and consider making adjustments accordingly. Consult with your investment advisor to determine if rebalancing your portfolio mix of stocks and bonds is appropriate. Insurance needs change ... Reexamine your needs for life and property insurance. If you were fortunate to have children come into your life this year, you may want to increase your life insurance. And if one or more children have left the nest, you might want to consider reducing your coverage. Have you added a home improvement? If so, the value of your property may have increased so you need to increase your real property coverage. Review your 2011 spending plan ... Think of the plan you developed earlier this year as a report card. Did your income and spending perform according to plan? How about your net worth? Do your assets exceed your liabilities? Finally, how about your savings? If you didn’t have a written plan, will you prepare one for 2012? And what lessons from 2011 can you carry forward into 2012? Your last tax return, the one you filed this year for 2010, is part of your financial plan. So you should review it as well. Did you receive a refund this year? If so, you may be having too much withheld. Refunds are nice but the IRS and FTB do not pay interest on that money. You’re just getting your own money back. Consider changing your withholding documents. Your financial professionals ... Because no single advisor has all the answers, you need a reliable team of financial professionals to assist you. Depending on your financial complexities, your team may include your attorney, tax preparer, investment broker, banker and financial planner as essential advisors. But, you could also have fewer members. However many advisors you have, include them in your decision-making process and consult with them often. Their advice will likely save you time, trouble and a lot of money.