These Financial Times |Taylor Schulte

A recent conversation between my wife and I turned towards Christmas shopping.  As usual, she kindly provided me with a dose of her annual holiday shopping advice: “The best way to get something done is to begin.”

The same can be said for year-end tax and investment planning. Left undone, it can result in higher tax bills, lower investment returns, and missed opportunities.  It may not be high on your list given the time of year, but with a little advanced planning you can be sure you are putting you and your family in a better financial position. Here are a few suggestions for you to consider before year-end:

Review Your Investment Portfolio. This year may be more important than ever.  With the Bush tax cuts set to expire, the top rate on capital gains is likely to increase, possibly to 20%. Even if the tax cuts are extended, the new 3.8% Medicare contribution could raise your long-term capital gains rate to 18.8% if you’re a high income earner in 2013. Be cautious, however, of allowing taxes to influence your investment decisions – but if an appreciated security no longer has a place in your portfolio, you might consider taking advantage of the current rates and selling before year-end.

Strategize Your Charitable Giving. If you plan to make a significant charitable contribution before year-end, you might consider donating appreciated stock(s) or mutual fund(s) that you have owned for more than one year. By doing this you will recognize the higher value of your gift, avoid paying taxes on the appreciation of the security, and still take a deduction for the fair-market value on the date of your donation.  If it is a security or fund that plays an important role in your investment plan, select a different security or use cash.

Maximize Your 401(k). Contributions to your 401(k) are deducted from your paycheck before taxes – reducing your taxable income and ultimately lowering your tax bill. The maximum contribution amount for 2012 is $17,000 ($22,500 for workers turning 50 before year-end). Review your current contributions and, if possible, consider directing some extra dollars with your last few paychecks or through a year-end bonus.

Evaluate Your FSA. Remember, unused funds in your flexible spending account (FSA) do not roll over. Review your account, and if necessary, spend down the remaining amount. A few employers implement an IRS extension allowing you to use your FSA contributions for expenses incurred as late as March 15th the following year, while others force you to use everything before year-end. Check with your employer for details on your specific plan.

Monitor Upcoming Tax Changes. As of this writing, Congress has not taken action on the looming “fiscal cliff” (a series of tax increases and spending cuts that are set to go into effect January 1st). Federal Reserve Chairman Ben Bernanke is urging Congress and the President to come to a sensible course of action to avoid throwing the country back into recession. While the Federal Reserve will continue buying long-term bonds on a monthly basis, it can’t continue indefinitely.

While it is difficult to plan for the unknown, local CPA Conor Donnelley reminds us “it is really about being aware of the changes so that you can budget for the tax, or take advantage of a fleeting deduction or credit.”  He further notes “it might make sense for business owners to purchase equipment before the end of the year, in the event that Section 179 is not extended to take advantage of the bonus depreciation that is set to disappear in 2013.”

Business owner or not, many of the potential changes will likely impact you.  Consult with a tax expert to explore strategies that could be beneficial to you. Planning ahead can be challenging and time consuming, but taking the appropriate steps now will prove to be important for the financial health and security of you and your loved ones. Have a safe and wonderful holiday season.

Taylor Schulte is a Financial Advisor for Beverly Hills Wealth Management in Downtown San Diego.  Taylor specializes in in providing independent, objective, financial advice to all types of investors and organizations.   He is dedicated to providing a high level of customer service along with tailored wealth management solutions to simplify and enhance the quality of his clients’ lives.  He can be reached at [email protected].