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How the Market Works

How the Market Works:  Reduce Your Taxes Before Year End

Posted by kdadmin on October 30th, 2015.

How the Market Works:  Reduce Your Taxes Before Year End

While it’s tempting to make all sorts of puns about Spooktober, I think I’ve had just about enough of this month. From intense market volatility, to the erratic large cap / small cap disconnect, to a Federal Reserve who just wants to sit on its hands, to me being so crabby thatI actually spelled out the sh** word on my blog, I’ve had enough.

(As an aside, the funny thing about travel is that even though I don’t understand most of the languages spoken around me, everybody, in every culture in western Europe still seems to know how to say sh**. It’s probably the most common word I understand over here. But once I saw it in print, I thought, I don’t want THAT sh** on my blog …)

Now, if you really want something spooky, look at the chart above. It shows that over the last five years, state and local government tax revenues have increased by 31%, while real personal income has only increased by 22% and personal savings is down by 15%. The government gets more and we get less. Now THAT’S scary.

ANYWAY, I’m going to leave the Halloween puns alone for the moment and draw your attention to something useful. THIS season, my friends, these last two months of the year, are the ACTUAL tax planning months. Waiting to do your tax planning until January or March is like closing the barn doors after all the horses have run out. It doesn’t matter, and it won’t help.

There is a SLEW of things you can do to get your ducks in a row to reduce your taxes BEFORE year end. And I mean year end euphemistically. Waiting until the ACTUAL year end is a recipe for disaster. Pretty much nobody can get anything done in the financial field after about December 15th. So many people are on vacation, and those who aren’t are either too crabby, or have got too many candy canes in their eyes to get anything done.

NOVEMBER is the best tax planning month of the year for several reasons.

  1. Mutual fund and ETF managers have a pretty good idea of what they expect their capital gain / loss / distribution numbers to be for the year.This is how the market works.
  2. Most small businesses have a good idea of how much they can contribute to retirement or profit sharing plans by now.
  3. There is still time to do tax loss harvesting.
  4. Most people can still find tax deductible donations to make before year end.
  5. People generally have an idea about what their tax bill could be for the year and can make estimated tax payments if necessary.

For those of you living in Minnesota, still the worst state in the nation for personal income taxation, November is more crucial than ever. Failing to make smart tax moves before year end will likely cost you more, if you’re a Minnesota resident, than anywhere else in the country. Cold is expensive, apparently.

So, get on the stick. If you haven’t sent us your tax returns for 2014 yet, email terry for a secure link, and send them now. Be sure to send both state and federal, and include ALL schedules. Without your data from last year, we won’t know which tax saving opportunities you might enjoy this year. We need these no later than November 10th, as many mutual fund and ETF’s make set their distribution dates in the third week of November. If we want to sell to avoid phantom income, we need to do it before then.

Further, now is the time to check your contribution limits for your 401k, 403b, 401a, IRA, and other retirement plans. Have you maxed out your contributions? If not, can you catch up before year end? What does your employer’s policy say? Can you find the money to do so? Consider this: if you’re in the 25% tax bracket, and you make an extra $10,000 contribution, that would save you $2,500 in taxes. That’s a nice chunk of extra change.

This means that next week, in the FIRST WEEK of November, send us your documents and do a quick check of your contributions. Let us help you find a little extra something to be thankful for when the holidays finally roll around.

One more thing, with the market squarely back in a delusional state, I’m going to take this opportunity to continue my series about How to Be Semi-Retired. If you haven’t read the series, or done the work, start here to get caught up.


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