The new year is just around the corner, and now’s the time that tax advisors usually recommend shuffling your finances, said Eileen A.J. Connelly in the Associated Press. Besides scoring last-minute tax breaks, year-end planning is a chance to look to the future. “But with an economic downturn in full swing and a new president waiting in the wings, that typical advice is coming up against a range of uncertainties this year.” President-elect Barack Obama, for instance, has pledged to increase the capital gains rate and income taxes for higher-income households. If he follows through, many common year-end tax moves—such as deferring income or accelerating deductions—may not make sense for everyone. It’s never easy to predict the future. But this year, “a lot more thought” needs to go into year-end planning.
First consider whether you’ll make more or less money next year, said Bill Bischoff in SmartMoney. “Given the rising number of layoffs and employer cutbacks, that’s the $64,000 question for many folks.” Look at the different scenarios and make a calculated guess. If you expect to earn less next year, as many people do, you may want to prepay deductible expenses, such as your mortgage or your kid’s college tuition. You may also want to sell securities that have lost value, which will allow you to deduct up to $3,000 against ordinary income, and offset gains this year and beyond. No matter what, “I don’t think you should hesitate to unload shares you want to get rid of.”
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