Financial planning: Be proactive with year-end ‘to do’ list

What can I do proactively for my financial plan as we head into year end?

As we approach the end of the year, take the necessary time to review your financial planning strategies. A lot can happen in a year. If your personal life, market conditions, or tax circumstances have changed, you may need to revise your long-term financial plans.

Related: Diversify your portfolio with zero coupon bonds

Do you own stocks and other marketable securities outside of your retirement accounts that have lost money? If so, consider selling those losing investments to lower your 2016 tax bill. This strategy allows you to deduct the resulting capital losses against this year's capital gains. If your losses exceed your gains, you will have a net capital loss. You can deduct up to $3,000 of net capital loss (or $1,500 if you are married and file separately) against ordinary income, including your salary, self-employment income, alimony, and interest income. Any excess net capital loss is carried forward to future years and puts you in position for tax savings in 2017 and beyond.

Suppose you are fortunate enough to have the reverse situation: You own stocks and other marketable securities (outside of your retirement accounts) that have substantially increased in value since they were acquired. Taxpayers in the 10% or 15% income tax brackets can sell the appreciated shares and take advantage of the 0% federal income tax bracket available on long-term capital gains.

Giving qualified-dividend-paying stocks to family members eligible for the 0% rate is another tax-smart idea. But before making a gift, consider any gift tax consequences. The annual gift tax exclusion is $14,000 in 2016 (the same as 2015). If you give assets valued at more than $14,000 to an individual (or $28,000 to a married couple) during 2016, it will reduce your $5.45 million gift and estate tax exemption, or be subject to gift tax if you've already used up your lifetime exemption.

Next: Charitable donations

Charitable donations can be one of the most powerful tax-savings tools because you're in complete control of when and how much you give. No floor applies, and annual deduction limits are high (20%, 30%, or 50% of your adjusted gross income, depending on what you're giving and whether a public charity or a private foundation is the recipient).

Also see: Tying the knot raises multiple financial issues

If you have appreciated stock or mutual fund shares that you've owned for more than a year, consider donating them instead of cash. You can generally claim a charitable deduction for the full market value at the time of the donation and avoid any capital gains tax hit.

If you own stocks worth less than you paid, don't donate them to a charity. Instead, sell the stock and give the cash proceeds to a charity. That way, you can generally deduct the full amount of the cash donation while keeping the tax-saving capital loss for yourself.

Have there been any major changes in your personal life, such as a recent marriage or divorce, the birth or adoption of a new child, or a death in the family? If so, you may need to revise the beneficiaries on your retirement accounts and life insurance policies. You may also need to update your will and power of attorney documents.

Life changes can be stressful, and it's very common for these financial planning opportunities to be overlooked. But failure to update financial plans and legal documents can lead to unintended consequences later on, either when you die or if you become legally incapacitated and need someone else to make certain decisions on your behalf.

Read - IRAs: How to make an early withdrawal

These are just a handful of financial issues to consider at year end. Your financial and legal advisers can run through a more comprehensive checklist of planning options based on your personal circumstances.

Next: What are the main advantages of a Roth individual retirement account?

What are the main advantages of a Roth individual retirement account?

You open up a Roth IRA and make after-tax contributions. The real tax savings comes during retirement: You don't owe income taxes on qualified Roth withdrawals.

Also see: How a second marriage affects estate planning

As an added bonus, unlike with traditional IRAs, there's no requirement to start taking annual required minimum distributions from a Roth IRA after reaching age 70½ years. So you're free to leave as much money in your Roth account as you wish for as long as you wish. This important privilege allows you to maximize tax-free Roth IRA earnings, and it makes the Roth IRA a great asset to leave to your heirs (to the extent you don't need the Roth IRA money to help finance your own retirement).

More "Money Matters" columns:

Health savings account provides triple tax benefit

This trust may benefit special needs individuals

Can life insurance be used to pay estate taxes?

Send your questions about estate planning, retirement, and investing to Joel M. Blau, CFP, c/o Urology Times, at UT@advanstar.com Questions of general interest will be chosen for publication. The information in this column is designed to be authoritative. The publisher is not engaged in rendering legal, investment, or tax advice.

Subscribe to Urology Times to get monthly news from the leading news source for urologists.