With April 15 not far behind us, perhaps now is a time to consider financial ideas that may improve your tax situation this time next year.
Here are a few to consider:
Donate appreciated securities to charities. You’ll get an immediate tax break, and you’ll avoid capital gains taxes.
Make extra 401(k) contributions (if allowed by your plan). You’ll lower your taxable income and boost your retirement savings.
Add itemized deductions in December. If you’ve got itemized deductions, such as non-reimbursed job expenses, consider making these payments in December, rather than in January 2005, so you can deduct the items on your 2004 taxes.
Sell your losers. If you sell investments that have declined in value — and that no longer meet your long-term needs — you can apply the losses against capital gains you may have.
Sell the right shares. If you’re going to sell shares in a mutual fund, request that the shares being sold have a higher "cost basis" (purchase price), so that you can report a smaller gain.
Make deductible payments in 2004. If you make any tax-deductible payments, such as the interest on your mortgage, get them in before 2004 comes to an end.
Open an IRA. If you don’t already have a Roth or Traditional IRA, open one now. Both provide tax benefits, and you can make contributions for the 2004 tax year up until April 15, 2005.
Defer income when possible. If you’re self-employed, defer billing until late December. If someone owes you money now, but you don’t get a check until 2005, it’s not taxable income for 2004. If you work for a company, and you’re scheduled to get a year-end bonus, see if you can put it off until January.
There are many things that you can do to improve your financial picture in the new year, and these are just a few that can help get things started off on the right foot.
Jim O’Neil is an investment executive with Dain Rauscher Inc., a member of NYSE and SIPC. These answers are for informational purposes only and should not be considered a recommendation to buy or sell any security. Send investment questions to Investor’s Forum, The Herald, P.O. Box 930, Everett, WA 98206, by fax at 425-339-3435, or via e-mail at economy@heraldnet.com.
