Get Finances In Order By Jan. 1
Taxes may be the last thing you want to think about right now, but it can pay to take time out from the holiday shopping to do so.
The Early Show's financial adviser Ray Martin explains you will save yourself some money and avoid financial misteps by getting your finances in order before the year ends.
Flexible Spending Accounts
Remember, if you don't spend all of the money in your health or dependent care accounts, you'll lose it. Martin recommends calling or logging on to your company's benefits site to check on your unused balance. You don't have to turn in your receipts before Dec. 31, but you do need to have incurred the cost by then.
If you're looking for ways to spend money left in the account, consider buying new eyeglasses or stocking up on prescription medication. You can even stock up on over-the-counter medicines and symptom relievers. With cold and flu season here, just think of all the health-care related items you can buy at your local drug store. Martin says you can even give these as stocking stuffers for your family.
Make Retirement Account Contributions
Martin says to check your pay stub to see whether you've reached your contribution percentage or dollar limit for your company-provided retirement plan for the year. The dollar limit is $12,000. If you're over 50, you can contribute $14,000.
If you haven't maxed out your account, ask to change the contribution from your remaining paychecks or bonus check.
Collect Required Retirement Distributions
If you are over 70, the IRS wants you to begin collecting on your retirement money. Based on your age, you are required to distribute a certain amount from your accounts. Failing to take this minimum distribution will result in a harsh penalty from the IRS.
Pay Deductible Expenses
If you think you may wind up in a higher tax bracket this year, Martin says you want to have as many tax deductions as possible in order to lower your tax bill. Here are some expenses you can pay before year-end to increased your itemized deductions for the year.
Adjust Your Tax Withholding
If you've had another child, bought a house, or will otherwise end up with more tax deductions than usual this year, Martin says you'll be pleasantly surprised by a larger tax refund check.
But after you cash that larger tax refund check, Martin says you are just giving more of your money to the U.S. government in the form of an interest-free loan. If you could use the cash instead of making a zero-interest loan to Uncle Sam, then reduce your tax withholding by increasing your withholding allowance, changing your withholding status, or both.
You need to complete a new W-4 form and submit this to your company's payroll department. Martin says to do it now, so that the change will be effective in the first pay period of the new year.
Match Stock Losses/Gains
This advice is only for investors who have taxable accounts. If you sell stock and make a profit, you have to pay taxes on that gain. Martin says to look to see if you have any loser stocks in your portfolio that it may make sense to sell. By selling those loser stocks and "locking in" a loss, you can shelter your gain. The losses offset the gains, which means you can avoid paying all or some taxes on the gains.
Small Business Owners
There's a significant change in the tax law for 2003 that small business owners should be sure to take advantage of. Owners can buy up to $100,000 worth of computers, office furniture and software and deduct this amount from their net income. This amount is a big jump from the prior limit of $25,000.
If you are having difficulty coming up with $100,000 in eligible expenses, Martin suggests you consider replacing or buying a heavy SUV, pickup or van that is primarily used for your business. Vehicles with a gross vehicle weight rating of 6000 pounds or more qualify for the deduction.
Martin also urges small business owners to open a self-employed 401(K) plan. You can contribute up to $42,000 to the account and then deduct that amount from your taxes. Contributions don't have to be made by Dec. 31, but you must have established the account and have an account number before the end of 2003.