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END-OF-THE-YEAR MONEY MOVES Here are some things you might want to do before saying goodbye to 2010. Provided by Kim Gaxiola What has changed for you in 2010? Did you start a new job – or leave a job behind? Did you retire? Did you start a family? If some notable changes occurred in your personal or professional life, then you will want to review your finances before this year ends and the next one begins. Even if your 2010 has been comparatively uneventful, the end of the year is still a good time to get cracking and see where you can plan to save some taxes and/or build a little more wealth. Do you practice tax loss harvesting? That is the art of taking capital losses (selling securities worth less than what you first paid for them) to offset your short-term capital gains. You might want to consider this move, which should be made with the guidance of a financial professional you trust. In fact, you could even take it a step further. Consider that up to $3,000 of capital losses in excess of capital gains can be deducted from ordinary income, and any remaining capital losses above that can be carried forward to offset capital gains in upcoming years.1 There is still the risk that if Congress doesn’t act soon, long-term capital gains will be taxed at 10% for those in the 15% bracket and 20% for those in the higher brackets beginning in 2011. President Obama has himself proposed a 20% top tax rate for capital gains.2 So you might think of triggering excess capital losses in 2010 and using the losses to shelter future long-term capital gains that could be taxed at a higher rate. If you are in the 10% or 15% brackets (taxable income of $34,000 or less for an individual, $68,000 or less for a married couple), 2010 could be the final year in which you can cash in capital gains without triggering a tax.3 Deductions and credits. Besides a possible mortgage interest deduction, you might be able to take a state sales tax deduction, a student-loan interest deduction, a military-related deduction, a deduction for the amount of estate tax paid on inherited IRA assets, an energy-saving credit, a homebuyer credit … there are so many possibilities. Now is the time to meet with your tax professional so that you can strategize to claim as many as you can. If you’re planning on itemizing deductions, now is also the time to start gathering receipts and assorted paperwork (if you haven’t already done so). Could you ramp up your 401(k) or 403(b) contributions? If you can do this in November and December, that will lower your taxable income. Do it enough and you might be able to qualify for other tax credits or breaks available to those under certain income limits. Are you thinking of gifting? How about making a contribution to a charity or some other kind of 501(c)(3) non-profit organization before 2010 ends? In most cases, these gifts are


partly tax-deductible. If you pour some money into a college plan on behalf of a child, you could get a deduction at the state level (depending on the state). Of course, you can also redu ce the value of your taxable estate with a gift or two. This year, the gift tax exclusion is $13,000 – so you can gift up to $13,000 to as many people as you wish this year, with the understanding that you have a $1 million lifetime limit before you are actually hit with gift taxes.4 While we’re on the topic of estate planning, why not take a moment to review the beneficiary designations for your IRA, your life insurance policy, and your retirement plan at work? If you haven’t reviewed them for a decade or more (which isn’t uncommon), double-check to see that these assets will go where you want them to go should you pass away. Lastly, take a look at your will to see that it remains valid and up to date. Should you go Roth before 2010 ends? The IRS has given you a little incentive to do so: if you convert a traditional IRA to a Roth in 2010, you can optionally split the income taxes stemming from the conversion across 2011 and 2012 - without increasing your 2010 taxable income. If you wait until 2011 to make the conversion, that choice won’t be there.3 Do you have a student in college or a private K-12 school? If you’re paying for private school with Coverdell ESA funds, here’s an alert: the annual contribution limit is dropping from $2,000 to $500 in 2011, and primary and secondary school tuition will no longer count as a qualified expense next year. You’ll also want to see if you can claim the American Opportunity Credit (which is as much as $2,500 per student) for qualified college expenses in 2010; it may or may not be extended for 2011.3,5 What can you do before they sing “Auld Lang Syne”? Talk with a financial or tax professional now rather than in February or March. Little year-end moves might help you improve your short-term and long-term financial situation. Kim Gaxiola may be reached at www.GaxiolaFinancialGroup.com, (800) 584-3652 or kim@gaxiolafinancialgroup.com Securities offered through Cambridge Investment Research, Cambridge Investment Research Inc. a Broker/Dealer member FINRA/SIPC to residents of AZ, CA, FL, IL, NJ, NV, OR, WI. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. Cambridge and the Gaxiola Financial Group are not affiliated. This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If assistance or further information is needed, the reader is advised to engage the services of a competent professional. www.petermontoya.com, www.montoyaregistry.com, www.marketinglibrary.net

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irs.gov/taxtopics/tc409.html [3/4/10] cnbc.com/id/40014147 [11/4/10] kiplinger.com/columns/taxtips/archive/last-minute-tax-savings-for-2010.html [11/3/10] turbotax.intuit.com/tax-tools/tax-tips/tax-planning-and-checklists/5533.html [11/5/10] usatoday.com/money/perfi/columnist/block/2010-09-14-yourmoney14_ST_N.htm [9/14/10]


End of the Year Money Moves