Year End Planning

A comprehensive financial planning firm like BWFA can add value to your life in many ways. Some of them are financial! For example, we can help you take advantage of unique opportunities to create substantial savings in gift-giving, retirement plan distributions and personal spending. One way is by helping you take advantage of year-end planning opportunities.

Annual gifts to children and other family members and to charities are very common. Any individual can give $10,000 per year to as many individuals as they wish, and an unlimited amount to charity. If you are considering one or more gifts this year, please do not wait until the last minute to tell us. We will help you plan and execute tax-wise gifts which will both please the donee and frustrate the tax collector.

Giving to offset exceptionally high income in 2000
If this was a good income year for you and your family, some year-end activities you might contemplate include making charitable gifts in advance to pay 2001 pledges and tithes. No charity will complain if you make your planned gift for 2001 before it is due. You then will get a larger charitable deduction this year with which to offset your exceptionally high 2000 income.

IRA Distributions
Your advisor at BWFA can help you plan your taxes and then calculate mandatory required IRA distributions for you when you have reached 70 � years of age. We will also be keeping an eye on bills proposed for the new Congress which may benefit you financially if enacted into law. If an opportunity exists to save taxes, we will advise you.

Capital Gains Distributions
Many mutual funds will be making heavy distributions this year. Funds have had to meet large numbers of redemptions due to market volatility and investor uncertainty. If you own mutual funds in taxable accounts, the fund managers will distribute the gains generated from this activity to You before year end. We will be looking for tax-oriented selling opportunities in November and December for all our management clients. If we are managing your mutual fund accounts, you can rest easy. We will do what we can to wash your gains with losses, but we will not let the tax tail wag the economic dog. If sale of a particular security is untimely for investment reasons, we won’t sell it just to get the tax benefit.

Annual Roth IRAs
Roth IRAs are sources of tax-free income after you hold them for five years if you are above the age of 59-� . Conversions of existing IRAs to Roths when annual Adjusted Gross Income is less than $100,000 can be beneficial to some. Discuss these issues fully with us at your annual review.

Acceleration/Deferral techniques
Grouping your tax deductions into the same calendar year can help you exceed the IRS thresholds for deductions in order to achieve more tax savings. The deductions for which this is especially true are: medical expenses, investment expenses, and employee business expenses. For example, medical expenses usually have to be quite large before you are able to qualify for a deduction. Only those medical expenses that exceed 7.5% of your income will qualify for a medical deduction. Try to pay for medical expenses all in the same calendar year. You will have a better chance of exceeding the limitation. Investment expenses, tax preparation expenses, and employee business expenses are also treated similarly. You must subtract 2% of your adjusted gross income from the total of these expenses and are only allowed to deduct the difference. Paying as much of these expenses in one calendar year as possible increases your chances for a higher deduction.

It may also be beneficial to prepay your state taxes in 2000 rather than wait until April 15 of next year to increase deductions.