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Year-End Financial Planning Checklist

As 2006 draws to a close, you still have opportunities to save on your 2006 taxes and, at the same time, move closer toward achieving your financial goals. We’ve listed a few year-end tactics to consider:
  • Gifting. The gift tax annual exclusion allows you to give up to $12,000 each year ($24,000 for a married couple) to as many people as you choose without incurring any gift tax. Not only does gifting enable you to assist someone with an immediate financial need, but it also allows you to reduce the size of your taxable estate.
  • 529 contributions. You may want to use your annual gift tax exclusion to set up, or add funds to, a 529 college savings plan for your child or grandchild. Many states’ 529 plans – including Michigan’s – offer state income tax benefits to residents who contribute to the plan.
  • Charitable contributions. Donations made before December 31 to qualified charities are generally eligible for an income tax deduction. Also, donations to charity give you another opportunity to remove assets from your taxable estate, potentially resulting in lower estate taxes.
  • Tax-deferred savings plan contributions. Saving on a pre-tax basis in your employer’s 401(k), 403(b), 457, or similar savings plan is one of the most effective ways to save for retirement and lower your income tax liability. If you’re not contributing as much as allowable on a pre-tax basis to this plan, consider increasing your pre-tax contributions (or starting them, if you’re not already making them) before December 31. If you act quickly, you might still have time to reduce your 2006 taxes. This year’s limit on total pre-tax contributions to a qualified plan is $15,000 or $20,000 for those 50 or older.
  • Required IRA distributions. If you’re 70½ or older or the beneficiary of an inherited IRA, you generally have until December 31 to take the required minimum distribution (RMD) from a traditional or rollover IRA. If you do not take the RMD, the IRS will impose a 50% penalty on the amount you should have received.
  • Investment gains and losses. Think about reducing your capital gains liability by selling investments, if any, that have declined in value. Losses on stocks can be used to offset gains, to the extent the losses equal capital gains on the sale of other assets. If your losses exceed your gains, you can deduct up to $3,000 ($1,500 if you’re married and filing separately) of capital losses against regular income.
At Grand Wealth Management, these are just a few of the things we discuss with our clients as December 31 approaches. Working with advisors you trust makes a big difference at year-end – and in the long term.

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