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Las Vegas, NV, United States, 2011/11/22 - As weekend thoughts turn towards holiday bowl games, it’s important to remember that the financial moves you make during the fourth quarter will impact not only your long-term financial goals, but the amount of taxes you’ll owe come April.
Look at year as a whole, then look at the game-to-game play-by-play. The best way to look towards the future is by taking a sweeping look at the past. Take a good look at your investment portfolio. Ask yourself and your financial advisor what worked well and what didn’t. And always gauge those results with the risk factor and the amount of time you have given that investment to grow. Reviewing your portfolio in its entirety will help you determine your appetite for the future. Look at real estate holdings and available cash as a part of your financial portfolio too.
Make sure it maintains the right balance. For instance, the last game plan to purchase a large-cap stock may have paid out well this year so that one investment might overshadow the rest of your portfolio and have become a larger player than you originally intended. You may also want to look to rebalance that investment so it doesn’t overshadow other players in your portfolio team. If this is the case, you may want to sell off some of profit and reinvest it elsewhere in order to rebalance.
Keep in mind the longer the amount of time you have to hit your long-term financial goals the more ‘plays’ you can make from year to year. An overall review with your financial advisor will determine whether or not you should do that before or after the final day of the year on Dec. 31.
Know when to keep possession and know when to take the conversion. Before you make a change, take a look at how long you’ve been in possession of that investment. Short-term investments can generate capital gains taxes if converted. Proceeds from an investment that is cashed in within a year of owning them can be taxed as ordinary income. Remember if you sell anything off before the first of the year, you could pay capital gains. Capital gains on the sale of assets held for more than a year are taxed at lower rates: 15 percent for most investors and zero percent (through tax year 2012) for those in the lowest tax bracket.
The best offense is a good defense. Minimize your tax consequences if you have enjoyed a particularly profitable year. While tax consequences should never drive your decisions, you can sell losing positions at a loss to avoid some of the capital gains. You may also want to consider asking your employer to delay a bonus until 2012. If you must take out a portion of your retirement savings, make sure to re-invest it in a place that is easily accessible with little or no tax consequences in the future. Now is also the time to “harvest your losses” and it can save a lot of money in April if the play is executed properly. Any losses over and above the amount of your gains can be used to offset up to $3,000 of ordinary income ($1,500 for a married person filing separately) or carried forward to reduce your taxes in future years.
Hedge the portfolio against fumbling. An overall assessment will determine which investments make sense to keep in a tax-advantaged account and those that are not. Generally speaking, it’s not smart to hold onto tax-free investments, such as municipal bonds, in a tax-deferred account (e.g., a 401(k), IRA, or SEP) because it provides no additional tax advantage to compensate you for tax-advantaged investments' typically lower returns.
In light of the coming changes to the health insurance arena, it’s a good idea for everyone to start a Medical Savings Plan of some sort if you haven’t already. Change is rapid in this arena and no one, even those with employer provided insurance, should be caught off-guard.
Remember, if you ever have any questions, always ask your financial advisor.
About The Author
Stephen Johnson, financial advisor for the Las Vegas Chamber of Commerce 401(k) Plan, is branch manager of Raymond James Financial Services Inc. Member FINRA/SIPC with offices in Draper, Utah and Las Vegas.
Johnson and his team manage approximately $300 million in assets in Nevada and Utah, specializing in both individual wealth management and retirement planning for businesses. Among his clients are the Children’s Miracle Network (CMN Hospitals) and Utah Arts Council in addition to the Las Vegas Chamber of Commerce.
In 2010, Johnson was inducted into Research magazine’s “Hall of Fame” among the top advisors in the country*. He was also named one of the “Top 100 Independent Financial Advisors” in America by Registered Rep magazine in August 2010**. Johnson has worked in the financial services industry for more than 30 years. He is a Registered Investment Advisor Representative and a member of the Financial Planning Association (FPA), the Investment Management Consultants Association (IMCA), the International Foundation of Employee Benefit Plans (IFEBP) and the Profit Sharing/401K Council of America.
*Candidates with a minimum 15 years experience, substantial assets under management, demonstration of superior client service and previous recognition from peers and the community were eligible for this award.
**Award ranked by assets under management.
This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The material is general in nature. Past performance may not be indicative of future results. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC, an independent broker/dealer, and are not insured by FDIC, NCUA or any other government agency, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal.