Thrifty Thinking: Year-End Financial Planning

Don’t neglect year-end financial and tax planning among the holiday hustle and bustle.

Peter Mallouk, JD, MBA, CFP has been rated the #1 Independent Financial Advisor in America by Barron’s in 2014 and 2013 (see this recent article) and his company, the #1 Independent Wealth Management Firm in America by CNBC in 2014. He is also the author of the bestselling book, The 5 Mistakes Every Investor Makes and How to Avoid Them (Wiley, 2014).
 
What are some things that people can do to get year-end tax breaks?
-- Make sure you have taken advantage of your employer’s 401k plan. If you aren’t on track to max it out, you can adjust for the last few paychecks of the year, or use a year-end bonus to make up the difference.
-- Make sure you have made your charitable gifts by December 31^st in order to deduct them on this year’s return. These gifts can be in the form of cash, securities or even household goods.
-- If you think 2014 will be a high income year compared to 2015, consider prepaying the January mortgage payment, 2015 real estate taxes and your 4^th quarter state estimated payments. Be wary of the alternative minimum tax though, as that may disallow some of those deductions.
-- Fund your children and grandchildren’s 529 plans. Many states offer a tax break for the contribution and the tax-free growth can help even a small contribution grow over time.
-- Make sure you have spent your flex spending account funds by year end, as many plans only allow up to $500 to be carried over to next year (check with your employer).
-- Self-employed individuals will want to make sure they have made appropriate estimated payments, as well as started to round up their deductible expenses (mileage, telephone, internet, etc.)

Why should people consider setting up a foundation?
There are multiple reason for setting up a foundation, both from a tax and non-tax point of view.
-- The big up front benefit is that you receive a tax deduction for the assets that are contributed to the foundation. If you have a large income year you can use this to pre-fund your charitable giving for the future, as you receive the deduction even if the funds are not paid out to charities until future years.
-- From a non-tax standpoint, it gives you an opportunity to get your families involved in philanthropy. Many clients will have their children and grandchildren involved on the board, and it allows them to help select the charities they give to and see the impact of their gifts.
-- It provides an additional vehicle to help a specific charity or important cause even after you pass.

It’s very simple to set up. They can be set up in a few days through a local community foundation, almost every major city has one.

PETER MALLOUK, JD, MBA, CFP, is the President and Chief Investment Officer or Creative Planning and affiliated companies. Mallouk’s companies provide comprehensive wealth management services to their clients, including investment management, financial planning, charitable planning, retirement plan consulting, and tax and estate planning services. He has been named the #1 independent financial advisor in America on Barron’s list and his company has been named the #1 independent wealth management firm in America by CNBC. He lives in Kansas City.