Financial New Year's Resolutions You Can Keep 

by Andrew Schwartz,CPA (Contact Author | Biography)

Did you make any resolutions concerning your personal finances last January? If so, how did you do? Did you attain your financial goals, or was this year a total financial washout for you? While December 31 is a day to reflect on the year gone by, January 1 is a time to look forward to the New Year, use this opportunity to review your financial scorecard for the past year and make any possible improvements where necessary for the New Year.

The good news about New Year's resolutions is that you get to make new ones each year.  It's even better if you can keep the good ones from the past year. In this article, we provide some New Year's resolutions to help you improve your finances.

Reset Your Retirement SavingsAt work, you probably have the opportunity to save for your retirement through a 401(k), 403(b) or 457 plan sponsored by your employer. If so, consider that most people find it easier to max out their retirement contributions by budgeting to contribute a set amount each month. (To learn more about 401(k) and 403(b) plans, see A Closer Look At The Roth 401(k).)

Employer PlansIf you have access to a 401(k), 403(b) or 457 plan at work, consider instructing your employer to withhold enough through salary deferrals to ensure that you reach the maximum limit each year. If you'll be 50 or older by December 31, bump that amount to account for the additional "catch-up contributions" you're allowed to make. If you get paid on some other frequency, such as  weekly or bi-weekly, simply divide the contribution limit by the number of your pay periods for the year. Of course, you should save only amounts that you can realistically afford, as contributing more than you can afford may result in having to incur debts to cover everyday expenses. To determine how much you can save each period, incorporate your retirement savings into your regular budget. (To read more about catch-up contributions, see Retirement Savings Tips For 45- To 54-Year-Olds.)

Are you self-employed? If so, depending on your income, you can contribute to an SEP IRA, profit-sharing plan or solo 401(k)/individual 401(k) plan. And if you'll be 50 or older by December 31, the contribution limit jumps for Solo 401(k)s, helping you save even more. (To learn more, see 401(k) Plans For The Small-Business Owner.)

Don't Forget About IRAsEven if you're covered under a retirement plan at work, you and your spouse can each contribute to a Traditional IRA or Roth IRA, as long as your combined taxable wages and net self-employment income is not less than the total amount contributed. Anyone 50 or older can contribute an extra $1,000 in 2010, increasing the total allowable contribution to $6,000, or $500 per month. Keep in mind, however, that if you're single and your adjusted gross income (AGI) exceeds $120,000 or married and your adjusted gross income (AGI) exceeds $176,000, you're not eligible to contribute to a Roth IRA in 2010.

Update Your Savings and Debt Reduction Goals
Did you know that if you deposit $815 into your savings account each month, the account will be worth approximately $10,000 at the end of the year, plus interest? Bear in mind that easy access to funds can be quite tempting, and if you are like most people, you will spend money to which you have easy access. Therefore, to help you reach your goal, be sure to transfer amounts earmarked for savings  from your checking account to a designated separate savings or investment account that is not easily accessed, making it less tempting for you to spend the money that you have managed to save.

Take a few minutes now to set new savings goals for 2010, including how much you would like to add to your retirement nest egg, your children's education fund or the down payment on your home. You should also reset how much you plan to pay on your personal loans, debts and home mortgage accounts. (To learn more about paying down debts, see Digging Out Of Personal Debt, The Indiana Jones Guide to Getting Ahead and Credit, Debit And Charge: Sizing Up The Cards In Your Wallet.) 

And don't forget about paying some extra principal toward your mortgage payment each month. By doing so, you'll earn a risk-free return on that money equal to your mortgage interest rate. Plus, you'll cut down on the number of years it will take to pay off your mortgage. However, if you must choose between adding to your retirement nest egg and paying extra on your mortgage, talk to your financial advisor to determine which option is more suitable for you. (For more information on mortgages, see Mortgages: How Much Can You Afford?and Mortgages: Fixed-Rate Versus Adjustable-Rate.)

Other Resolutions
Rebalance Your Investment PortfolioThe previous year was no different than any other year; with some sectors performing better than others. Chances are that the sectors that performed the best last year may not enjoy a repeat performance this year. By rebalancing your portfolio to its original or updated asset allocation, you take steps to lock in gains from the sectors with the best returns, and purchase shares in the sectors that have lagged behind last year's leaders. (Find out how to rebalance your investment portfolio in Rebalance Your Portfolio To Stay On Track and A Guide To Portfolio Construction.)

Pay Down Your Credit Cards.
If you owe money on your credit cards, determine how much you can realistically afford to pay off during the year. For best results, try not to charge additional purchases on those cards while you're trying to pay down what you owe. If you have high interest credit card balances, consider whether it would be more beneficial to pay off those high interest debts or to add to your savings. (To continue reading about credit and saving for the future, see The Beauty Of Budgeting.)

Review Your Credit Report
Review your credit report, and take steps to repair any negative aspects. Now that you're entitled to three free credit reports each year, there is no excuse for not reviewing what is one of your most  important financial reports, especially since errors in these reports are not uncommon. In the U.S., you can order your free credit report at AnnualCreditReport.com. A poor credit report could adversely affect the amount you are able to save, as it could result in you paying higher interest rates on loans, which reduces your disposable income.

Review Your Life Insurance and Disability Insurance NeedsAs you move through your career, your life and disability insurance need to continue to change. Give some thought as to how much protection you need and compare it to the coverage you currently have through your employer's benefit package. Consider whether you need more or less life insurance, and whether your needs would be better satisfied by term or permanent life insurance. Also, review your disability insurance coverage to determine whether you have enough coverage. (To find out more about insurance plans, see How Much Life Insurance Should You Carry?) 

Avoid Resolution Pollution
Be cautious about setting too many or unrealistic financial goals. Otherwise, you may be unable to accomplish any of them. Take this opportunity to restate your financial resolutions simply and clearly for the new year and rest easy knowing that this is one resolution you can keep. It may be a good idea to maintain a checklist to keep track of how you are doing throughout the year, so that you can make any necessary modifications. Consider meeting with your financial advisor to review the goals and objectives that you have established. 

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by Andrew Schwartz,CPA (Contact Author | Biography)

Your End-of-the-Year Tax Checklist for 2010

by Robert D. Flach, MainStreet
Wednesday, December 22, 2010

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The average person avoids thinking about taxes until the April deadline approaches, when it's too late to make changes that can cut your bill.
As 2010 draws to a close it's not too late to take steps to decrease the amount you'll owe the Internal Revenue Service. Here are some tax-planning moves to consider now:

1. Prepare a Preliminary Tax Return
Using your 2009 return as a guide, prepare a projected Form 1040. Start by estimating your adjusted gross income for 2010 and your allowable deductions. Determine if you will be able to itemize your deductions — do your eligible expenses

exceed the standard deduction for your filing status? Lastly, figure out the tax bracket you'll likely fall into for 2010.
The standard deduction for married people filing jointly remains at $11,400 for 2010. The standard deduction for singles and married people filing separately is $5,700, and the amount for the head of a household increases to $8,400. The personal exemption is again $3,650.

2. Consider Postponing Your Income and Boosting Deductions
If you expect to be in the same tax bracket next year, or a lower one, try to put off collecting income until 2011 and rack up as many eligible deductions now instead of waiting until after the New Year. You'll have more expenses to deduct this year and less income to tax at the same or higher rate.
If your income is likely to increase next year and push you into a higher bracket, do the reverse and try to collect as much of your taxable income as possible in 2010 and postpone deductible expenses until 2011. Income received in 2010 will be taxed at a lower rate and deductions claimed in 2011 will provide greater tax savings.
3. Size Up Your Itemized Deductions
It doesn't pay to itemize your deductions unless the total exceeds the standard deduction for your filing status. If you think you'll be able to itemize your deductions on your 2010 Form 1040, try to incur as many deductible expenses as possible this year.
If you won't be able to itemize, postpone any payments that could be deductible until 2011. By deferring these expenses, you'll have more deductions to claim next year.
4. Pay Medical Bills Now
The timing of itemized deductions is especially important when it comes to medical expenses. You can deduct medical expenses only if they exceed 7.5% of your adjusted gross income. If your income totals $70,000 for 2010, you can't deduct the first $5,250 of your medical expenses. If your costs total $6,000, you can claim $750.
In this scenario, if your medical expenses are more than $5,250 and you have enough deductions to itemize, pay your outstanding medical bills before 2011 begins. If your medical expenses are less than $5,250, put off paying any medical bills until 2011

5. Use Your Credit Card
If you don't have the cash to pay for deductible expenses, consider using a credit card to pay for the items so you can get the deduction for 2010. Eligible expenses charged to bank-issued credit cards are deductible in the year charged, not the year you actually pay it.
However, it's a different story for store-issued cards. If you use a store-sponsored card to buy deductible items at a department store, such as Macy's or Sears, the expenses can't be deducted until the actual charge is paid. So stick to bank cards for end-of-year purchases.
6. Review Your Investments
Look at the investments (including real estate) you sold this year and add up your gains and losses. Separate the totals for your short-term positions (owned for one year or less) and long-term holdings (more than one year). Gains and losses from the sale of inherited property are always considered long-term. Capital-gains distributions received from mutual funds are also classified as long-term.
Do a similar calculation for unrealized "paper" gains and losses for investments you still hold. Consider selling losing investments before the year ends to wipe out any taxable gains. Consider unloading holdings at a profit if your losses exceed the $3,000 maximum current deduction.
7. Consider Mutual Fund Dividends (If Not This Year, Then Next Year)
The law requires mutual funds to distribute net gains from security sales to their shareholders. During the fourth quarter, fund managers calculate their net gains for the year and distribute it through dividends to shareholders. The shareholders will pay federal and state income taxes at the special capital gain rates on these distributions. After a distribution is made, the value of the fund's shares drops.
If you buy shares of a fund for $10,000 on Dec. 1 and the fund issues a $1,000 capital gain dividend on Dec. 15, your shares will be worth $9,000 on Dec. 16. You had no real gain or income, but you must pay tax on the $1,000 distribution.
If you want to purchase fund shares during the final months of the year, wait until after the distribution is issued and the fund's value drops. It might be too late for you to address your mutual fund dividends this year, but it's something to keep in mind for next year.
8. Don't Forget the Alternative Minimum Tax
While these strategies may reduce your "regular" taxes, they may backfire if you're subject to the dreaded Alternative Minimum Tax (AMT).
For those who qualify for the AMT, medical expenses are only deductible if they exceed 10% (not 7.5%) of your adjusted gross income. Taxes, investment and job-related expenses aren't deductible at all. If you usually pay the "regular" tax but anticipate having to pay the AMT for 2010, consider postponing any potentially deductible expenses until 2011, when you may not be subject to the AMT.
The AMT rates are 26% or 28%. If for 2010 you are in the 28% or higher bracket for "regular" taxes and you will pay AMT at the 26% rate, you may want to claim as collect income as possible 2010. The additional income will be taxed at 26%.

Final Thoughts
As you consider these tax planning tips, keep in mind that certain strategies will help some people more than others. It is a good idea to discuss your year-end plans with your accountant before taking action.
And remember: Your first criteria for evaluating any financial transaction should always be economic — taxes are second.