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By Michael E Kanell
Atlanta Journal-Constitution
Tuesday, November 27th, 2007
Like the last of Thanksgiving's leftovers as the holiday passes, the days of 2007 are quickly dwindling.
But amid holiday and family plans, the shopping and spending —- and a stream of turkey sandwiches —- there is still the chance to save and protect some money, as well as to get a good start on next year's money management.
It is not too late, say financial advisers.
You can make a significant impact on your finances and your taxes if you act astutely —- and soon. Your mileage may vary, of course.
For instance, if every cent from your paycheck is headed to pay the bills —- and if you aren't plunking down the plastic for lots of unnecessary items —- you have a little less room to maneuver. But if you have any financial wiggle room, the planners say there are some things to consider.
First, a key end-of-the-year consideration —- charitable contributions. Of course, there are the moral imperatives, the desire to do some good. But that doesn't mean you must ignore the tax benefits, does it? If you are thinking about making a gift to charity, before you write the check, you might think about making the contribution in something other than cash, suggested Dave Polstra, co-founder of Brightworth, an Atlanta-based fee-only wealth management firm.
Let's say you own some stock that has done pretty well. (Despite the recent turmoil on Wall Street, the market is most generally up over the past couple of years.)
Think about making a gift of stock instead of the equivalent cash, Polstra said. "In my opinion, it is almost always better to give away an appreciated security than to give away cash."
When you give appreciated stock that has been held for longer than a year, you get a full, fair market value deduction for the value of the stock, and you don't have to pay tax on the gain in the stock.
"It's a double benefit," Polstra said. Otherwise, if you sold the stock, then gave the charity the money from the sale, you would have to pay the tax on the gain.
It doesn't have to be stock. Tax-wise it is preferable to donate stuff rather than sell the stuff for cash, which you'd pay tax on, and then make the donation.
There are other twists. For instance, if you are 70 years old, you are required by law to take some money out of your individual retirement account. But if you are charitably inclined, you can have your disbursement made directly to a charity and avoid the tax. Keep in mind that, barring congressional action, the law that allows this is set to expire Dec. 31.
"It is a tax-efficient way to give additional money to charity," said Emily Sanders, president and chief executive of Sanders Financial Management in Norcross.
And there is more than one way to give cash. If you give a number of gifts to different charities, you might be especially interested in what is known as a donor-advised fund. See, the Internal Revenue Service has been getting finicky about receipts: If you want deductions for contributions to a couple of dozen charities, you had better have some documentation to back that up.
But if you set up a donor-advised fund, you just have that one arrangement to account for. You put money in the fund, and the fund donates to the charities you choose.
Even better, you get a tax deduction for the money going into the fund; the charitable contribution can be made much later —- like next year. You can set up the fund with a variety of organizations, including community groups like the Jewish Federation and the Community Foundation for Greater Atlanta, but also investor companies like Fidelity and Schwab.
Note, however, that the IRS in the past has issued warnings about who you go to for your donor-advised fund. Not all of them are legit, the IRS says.
But maybe charity begins at home.
If you have stock, as the end of the year approaches, tax-wise it's important to decide whether to hold 'em or fold 'em. If you have nothing but winners (lucky you!), you might consider cashing out when the capital gains tax is relatively low. After all, if you delay the gain, you are betting that some future administration won't persuade Congress to raise the rate, Sanders said.
If you can offset your winning stocks with some of the losers in your portfolio, you might avoid tax altogether, she said.
Some other ideas:
> Make an extra mortgage payment. The interest you are paying adds to your deductions.
> Maximize your payments to your 401(k) retirement plan. Planners often counsel that strategy, but here's your last chance this year.
It's good for your future security, of course, but it also subtracts from your taxable income this year. If you are at least 50 years old, you can add $5,000 extra in what is called a "catch-up" contribution.
> Consider whether it makes sense to have any medical visits now or in the new year. If you have a deductible that you must pay each year and you've already made that payment, it might make sense to take the appointment.
If only a limited number of visits are permitted —- like dental checkups —- then you might count 'em up and see whether you have hit this year's quota.
> If you run a small business, push up plans to buy equipment and technology. You can deduct up to $112,000, Sanders said.
And then there's a chance for financial lessons —- and long-term investments —- for the children.
"If you have a teenager who is working a little, you should set up a Roth IRA for them," Sanders said. "That is one of the best gifts you can give your kid."
She suggests matching the teen's contribution, up to the $4,000-a-year limit.
Even a modest amount will add up over the years. If a 16-year-old puts $3,000 a year into a Roth IRA until she's 21, then adds nothing at all, when she is retiring at 65 she should have about $1 million, Sanders said.
"When I give seminars, that's the one that gets the most 'ah-hahs!' "
The last few weeks of the year are also a chance to prepare yourself for the next year's unknowns, said Alex Knight, a certified public accountant and a partner at business adviser Habif, Arogeti & Wynne.
One of the most important, he said: Update your will.
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