Making a list, checking it twice

It's time for some end-of-year financial housecleaning

At this time of year you’re probably making a list and checking it twice before heading for the shopping mall. But if you add this fiscal to-do list to your holiday-time planning, you could have extra cash in your pocket next year-and in the future:

Capitalize on capital gains (and losses). If you end 1999 with net capital gains, you’ll owe tax next April 15. But you can turn that obligation into tax savings.

For example, if you sold stock at a $10,000 profit, you’ll likely owe $2,000 in federal income tax at a 20% long-term capital gains rate. Instead, sell enough of your losing stocks, bonds or mutual fund shares to take $13,000 worth of losses and offset that gain. Now, you have a $3,000 net loss, which is fully deductible from your other income. In a 31% tax bracket, for example, you’d save $930 in tax.

“A $3,000 net capital loss is the largest amount you can deduct,” says Peggy Ruhlin, a certified public accountant and independent financial planner in Columbus, Ohio. Net losses greater than $3,000 can be carried forward to future years, she adds.

“You may not know your exact gain or loss position until early December,” when most mutual funds make capital gains distributions, says Eleanore K. Szymanski, a fee-only financial planner in Princeton, New Jersey. “These gains are taxable income, whether or not they’re reinvested.” Gather your records so you can act immediately after you’re notified
of your 1999 distributions, she adds.

Boost your retirement plan benefits. Review your 401(k) or other salary deferral plan, and “maximize this year’s contributions and decide how much you can afford to defer next year,” says Jane V. King, a financial planner in Wellesley, Massachusetts. Then, set aside enough of your salary to qualify for the largest employer match.

As always, talk with your financial adviser, broker or tax specialist about these strategies to make sure you’re being nice, not naughty.

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