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Prepping for the Holiday Season
Looking out the window lately? The leaves have not only changed colors but started falling. The polar vortex has been paying visits, and even the candy looting celebration has passed. With the holiday season starting, savvy household CFOs could benefit from the following:
1. Set a spending plan for the holiday festivities, including gifts, travel, and parties. This will help us avoid the holiday hangover in January and remember the season with warmth and happiness rather than sourness and bitterness from mounting bills. Spend some time comparing the sales ads, such as those on Blackfriday.com and plan accordingly. Remember to take care of needs first and then wants. Scavenge some more coupons on sites such as Retailmenot.com. You can even plant a small reward in January for yourself for surviving the holiday season triumphantly.
2. While cleaning up and prepping the house for parties and celebrations, don't simply chuck the usable goods that you don't want to keep onto the sidewalk for trash pick-up. Organize and donate them to local charities and save the receipts. You can claim up to $250 daily for the goods that you donate on your tax return. Note that higher value donations will need to be documented individually for deductions on the tax return and audits. The side benefit other than tax incentive? You will help make someone's holiday a little brighter.
3. If you are philanthropic minded, also consult with your tax planner/preparer to see if a cash donation to charities of your choice will help in your case. While you are at it, also consider whether you can benefit from any tax-loss harvesting. Homeowners who have their mortgages forgiven this year need to pay attention to the progress in Capitol Hill since if an extension is not granted, the mortgages forgiven will be considered as income and thus increase your tax liability this year.
4. While you are working with your tax planner/preparer or tax software, consider whether you need to adjust your contribution to tax advantaged retirement accounts. Contributions to a traditional IRA and contributory workplace retirement plans, such as a 401(k), can help you lower your tax liability, and hence keeping more money in your pocket while saving for your retirement in the future. Lower income families can even receive an additional tax credit for this type of retirement saving. Spouses who do not have access to retirement plans can consider a spousal IRA, sponsored by their working spouses.
5. If you have been saving to a retirement plan, work with your financial planner to evaluate whether you need to rebalance your portfolio or adjust your allocation in the future. While at it, consider discussing the utilization of your employee benefits. Some of those, such as health saving account or flexible spending account, also carry tax advantages.
Breathe and enjoy the season. Dream, plan, and realize.
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Wan McCormick is a Certified Financial Planner and Accredited Financial Counselor. At Reliable Alliance Financial, our goal is to provide affordable and objective financial advisory to consumers with honesty and transparency.