I love the sound of the cash register ringing, don’t you?
If you’re going to be successful in your financial life, treat it as if it’s a business and you’re trying to hear that awesome cash register sound. If you don’t, you’ll always prioritize yourself behind more “important” activities like your job (nevermind that the job is there to help your net worth…that’s probably the subject of another post).
Every business has a mandatory list of activities that can’t be ignored. So does your financial life.
Here are five items that MUST be on that list this quarter:
1) Mutual fund capital gains. Even if you don’t have mutual funds outside of an IRA now, you should learn how these rules work. When the manager (or system, for an index fund) trades stocks or bonds inside of the fund a capital gain is generated. Someone has to pay it, and there’s no real fair method, so the mutual fund company declares a date and divides the gain among shareholders of record. Even if you didn’t sell the fund, you’re responsible for your portion of the manager’s buying and selling.
With results so far in 2012 looking up, there’s a good chance you might get hit with a tax bill this year. Avoiding this tax is legal and easy. Find the dates the fund declares capital gains and transfer your money to a different fund in the same family. This avoids fees for switching and the manager’s capital gains tax.
Grab a calculator before you move any money. You’ll still be on the hook for capital gains taxes you generate by selling as well. The cost of switching might outweigh the savings you’ll realize from avoiding any taxes created by the fund manager.
2) The lemon drop. Hoping to skim off some of that skyrocketing Apple stock? Cover a portion of your capital gain by also selling your brother in law’s “can’t lose” loser. There’s no time like now to weed your portfolio of positions that aren’t going anywhere. Although you’re only allowed to show $3k in net capital losses each year, leftovers can be carried over to deduct in future years.
3) Charitable giving. Hopefully you’ve given to your favorite community non-profits throughout the year, but if not (and especially if you itemize), you’ll want to make cash and in-kind donations in before December 31. Keep receipts for your gifts. The IRS has tightened charitable giving laws in recent years.
4) Estimate your taxes and decide when to pay property taxes. If you own a home winter taxes are deductible either in December or January, your choice. Did you receive a big bonus this year? Take the extra deduction now to help lower your tax due. If you make too much, it might be a better idea to wait until next year. High income earners aren’t allowed to claim all of their itemized deductions (ask your accountant about whether you’re subject to phaseouts).
5) Goal evaluation and setting. The 4th quarter is the perfect time to begin thinking about your short and long term goals. Did you hit your benchmark in 2012? If not, what are you going to change in 2013?
While people generally talk a good game about benchmarking, most of my clients were surprised when I pulled the actual number out of their plan to see if they’d hit the mark during a year. By sticking with actual data and avoiding the “Yeah, it feels like I had a good year” you’ll be able to make the necessary course corrections to save the right amount of money in the upcoming year.
I’ll be addressing each of these areas in more detail during the course of the quarter, but do yourself a favor and schedule these tasks now. These are five activities that you don’t want to miss!
What other events are on your 4th quarter financial calendar?
This year I’m seriously thinking about shifting deductions to next year and doing some tax gain harvesting at the end of the year in anticipation of higher rates. I know – don’t bet on future taxes… any opinion on that?
Not sure if it’s right or not, but of course I have an opinion! I don’t bet on what the government’s going to do (especially after last night), but I always bet on what I’M going to do. If you’re going to pay higher rates because you’re making more money, I’m all about shifting.
Great tips Joe. I think it’s a great idea to schedule these things now. I am always surprised, although I shouldn’t be I guess, by the number of people who don’t plan and wait until the absolute last minute to take care of their end of the year issues. I think it’s key to keep up to date with what your finances are doing so you can make the best possible decision. I’ve seen too many people not do so and end up in a mess because they failed to plan.
Right on! …and the 4th quarter has so many dates compared with the rest of the year.
I’m still wary of that Apple Stock myself, I think they’re still living off the Jobs legacy. Great post Joe!
Wow! OG and I talk about that all the time. I totally agree. He thinks we’re nuts. We win!
I usually evaluate my asset allocation. Time to let go some of the dogs although they did pretty well this year.
I think lots of people are surprised how well most things did this year so far. It’s still a great time to “week the garden” so to speak, though.
Thanks for the reminder. I need to get on the tax stuff. BTW, what happened to the summer????
If you donate to charity, make sure the receipt says that the organization is a 501 (c)3 and that you received no goods or services for your donation. I’d love to see some more info on #1, not that I have lots right now, but hope to in the future.
Wow, I never knew that I could avoid the capital gains tax on mutual funds by shifting funds within the company. I don’t have a lot in the funds right now, but that is a great tip to know! Thanks Joe!
Excellent tips! Most people are not aware of the simple fact you could owe taxes on your mutual funds investments when money managers trade as it is passed on to the investors of the fund. I think with the possibility of capital gains tax increasing , considering to sell “losing” holdings might be a strategy for some.
As someone who just rolled over an IRA and is new to the tax-side of that world I really get these tips. Miss you Joe-hope you and the purse are happy!
Didn’t know about #1, good info. We do charitable giving, but also make sure to donate all that crap you left in the spare room, let it pile up and now you can’t even open the door because of the mess! Get a receipt and write in the current values of you donations. And heck, the IRS doesn’t even require a receipt for non-cash donations under $500, but keep them anyway 🙂 A good rule of thumb is your donations are about 1/5th of what you paid for them. Also, you can go to http://turbotax.intuit.com/personal-taxes/itsdeductible/ if you donated to goodwill or others and need help organizing and getting estimate values for your deductions 🙂
I honestly haven’t looked into the fun(?) topic of taxes, so I enjoyed this post! There’s a crapload of loopholes and strategies for getting the most out of your investments.
I’m pretty well-versed with my simple tax codes, but these are good to know in the future when I actually have investments! Thanks! I had no idea there were timeframes on so many of these things…
I Love to hate taxes! I can only pray a simpler tax code will be born before I die.
I think it’s my funnest thing to hate, too, now that you mention it, Brent!
My goals right now are much simpler…I wish I could start getting more involved in some of this other stuff, but my freelance income is still not where it should be, so my main focus aside from the daily life stuff is to build up my emergency fund. All summer I made just enough to NOT take anything out of it except two months ago. I JUST put everything back that I took out, now my goal is to grow it. I’m also trying to increase my monthly income with side jobs like taskrabbit so I an achieve this faster, AND I’m still looking for full time work so that I can be stable once again.
Slick advice Joe! Never knew about the mutual funds spreading of capital gains. I need to do better with my “Yeah feels like a good year” thinking. Probably don’t want to look at my dogs and lemons!
I’ve actually been thinking about investing in stocks. It feels as though everything else you have mentioned here I have already done. I’ve noticed a huge restriction increase on charitable giving. I would love some tips as to where I should look for stocks? I know the basis of stock exchange and have followed it for about 3 years now. I just don’t want to dive into a trading website without knowing someone else has had success with it.
I’ve carefully chosen my mutual funds and realize I will probably be paying a little bit in capital gains tax. However, I’m fairly confident that they will continue to hold strong and make up for the tax I’ll have to pay this coming year. Ah taxes, who likes ’em?
Ha! I love ’em. Know why? If I’m payin’ tax that means I’m makin’ bacon!
#5 rings true for me. I always use the 4th quarter to not only plan the next year’s finances but also do some life planning to make sure I am accomplishing my life goals. I have to drag my husband to this task kicking and screaming, but in the end he enjoys it. Your #3 also is a good reminder for me. There are so many deserving groups I would like to help. Thanks!