5 Financial Opportunities to Take Advantage of before 2011
It's now official - the end of the year is racing towards us a break neck speed! Turkey Day for 2010 is done and gone (except for the leftovers). What's next? Holiday parties, family gatherings, travel, Hannikah, Christmas, more gatherings, too much good food and then BANG! The new year.
Get set because 2011 will be here before you know it.
This might be scary to contemplate, but you STILL have time to address some very important financial opportunities that will disappear on December 31st almost as quickly and certainly as that apple pie did from your Thanksgiving table. The comprehensive list would be overwhelming (although a good financial professional should know it all).
Here are some of the highlights:
Manage Income
By now you should have a pretty good idea of how much income you are going to have for 2010. The question becomes, "Where does that income place you relative to the various tax brackets?" If you are short of the jump from the 15% to 25% bracket, you might want to find some more income for this year. It will get taxed at 15%. While paying taxes is never fun, paying 15% taxes today beats paying 28% taxes on those same dollars next year. If you earn more in the future (let's hope you do) or if tax rates go up (and they most certainly will) that 15% rate today will look pretty darn good.
Where do you find this income? Instead of deferring money to your IRA or 401(k), put money into your Roth IRA. The money you save in taxes by doing an IRA-type deferral could easily come back to bite you in your retirement years when you will be taxed on that income at the then-current (and likely higher) rates. It would be better to put that money into an account that can grow without ever being taxed again.
Manage Taxes
O?n the flip side, if your income is already above the lower tax bracket threshold, you might want to find a way to defer MORE of your income. This can be done with IRA or 401(k) contributions into existing plans. These contributions can be made next year, but there are some strategies that cannot be started after the new year. Talk to your tax professional about the timetable for creating various retirement plans if you are a business owner and fund these accounts as soon as you can.
Roth Conversions
2010 was a very special year for Roth conversions as the rules changed on income limits (now there are none) and how the income from those conversions are taxed (may be spread out over the two following years). If you are in a lower tax bracket and have IRA assets, you should seriously talk to your tax professional about your options regarding a Roth IRA conversion.
Capital Gains and Losses
If you have investment accounts you very likely have some capital gains. As it stands right now, the long term capital gains rate will jump from 0% to 10% (15% Income Tax Bracket) or from 15% to 20% (for higher income families). If you have long term gains, the tax cost of taking those gains in 2010 will be significantly less than in 2011 and (in my opinion) far into the future. You can also harvest any capital losses you have and use them against any capital gains you can drum up.? Again, talk to your tax professional.
Getting Mentally Prepared for 2011
OK, this last one is not completely time dependent. I'm sure you could put this off until next year. That's what most everybody does (which is most of the problem - people never address this issue), but the time to start planning for your financial future is TODAY. Until you make the conscious effort to take control over your money, your money will continue to be in control over your life.
Try this: make a commitment to yourself and your family that you are going to trim your expenses and improve your income in 2011. Don't just say it, though. Take a moment now to figure out HOW you are going to accomplish this. Share this commitment with someone you know and trust. It can be a spouse, a good friend, a family member or a professional fiduciary advisor. Whatever you do ... do SOMETHING. Make that commitment and do your best to save face with your friend and actually meet your self-imposed obligation.
You will find that the hour or two you spend on this one little project will be far more rewarding at the end of 2011 than fighting any crowd in any store this year.
This article was originally written and distributed through the Quizzle.com QuizzleWire blog. Click on the link to see the Original Article