Money Talk: The end (of the year) is near – are you ready?

Dave Gardner Money Talk

Every December, life seems to get more hectic, but our personal finances still demand attention with end-of-year deadlines.

I know you’re busy, so I’ll break down the recommendations into two categories — for those with relatively high and comparatively low incomes this year compared to future projections.

If your income is higher than usual this year, consider taking losses in your taxable portfolio (or 529 educational accounts in some situations) by selling investments in the red. Be careful that you don’t purchase the same securities immediately after the sale as you’ll run afoul of the “wash sale” rule and your loss will not be permitted.

If you’re charitably minded, look into starting a donor-advised fund such as the Fidelity Charitable Gift Fund. Schwab, Vanguard, and the Boulder County Community Foundation offer similar options.

These funds essentially serve as a charitable account in your name funded by your cash or investments. You get the charitable deduction in the current year, but can direct donations out of the fund for years to come. Most funds have investment choices so your philanthropic resources can grow for the long-term. Minimums can be as low as $5,000 for your initial donation to the fund, with recommended grants as low as $50 to your favorite charities.

Some situations are just perfect for donor-advised funds, such as if you have highly appreciated securities or shares in a closely held business. If you were to sell these interests outright, you could owe big taxes on the gains.

By transferring these investments directly to a donor-advised fund, you can avoid capital gains tax and get a charitable deduction for the full value of the investment. Just make sure you don’t exceed the maximum for donating appreciated securities — generally 30 percent of your adjusted gross income — if you want the deduction this year.

Other financial moves to consider are contributing additional funds to your retirement plan at work or IRA if you’re under the limits, accelerating your payables and slowing down receivables if you’re a small business owner, purchasing immediately depreciable assets for your business, paying property tax and state estimated taxes before the end of the year, and making your January mortgage payment in December.

If your income is low this year, you should take a different approach. Your focus is bringing income into this year to take advantage of your currently low tax bracket. If your adjusted gross income will be under $100,000 this year, take a look at converting part of your IRA or old retirement plan into a Roth IRA.

The amount you convert will be added to your taxable income, but in return you receive the “get out of tax forever” card on the converted assets. A Roth conversion almost always makes sense if you have the resources to pay the additional tax on the conversion and are in the 15 percent federal bracket or lower.

Finally, those in the two lowest tax brackets can escape federal long-term capital-gains tax on assets that they sell in their taxable account. Selling appreciated securities can be a way to reset your basis to a higher limit without paying federal tax for the privilege.State income tax may still be due.

Much of this advice does not apply if you’re unlucky enough to find yourself in the alternative minimum tax — the punitive parallel tax structure.

As always with financial recommendations, there are caveats and no one solution is right for everyone. If your situation is complex, rather than thinking you can Google yourself into a quasi tax expert, follow the advice of a qualified professional.

Dave Gardner is a certified financial planner with a practice in Boulder County. His Web site is www.yellowstonefinancial.com.