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Across My Desk: Year-end Spending

Now that 2005s holiday season is just a few weeks away, it's time to get smart about your year-end spending.

As much as you'd like to put that $3,000 flat screen TV on your "must have" gift list, why not think twice and do some tax-friendly spending this season. To aid in that task, some pros offer these suggestions:

  • Don't blow your bonus. While many Americans spend their bonus on a luxury item, a better way to go might be to divvy up those dollars maximizing your tax-deductible IRA/401 (k) contributions first, then paying off some credit card debt. Or, adding to your short-term savings goals before heading out to the malls.

  • Cut your taxes by taking advantage of the annual exclusion for gifting or rebalancing your portfolio.

"There are a number of very helpful tax and financial planning moves that an investor can make at year-end that also create significant gifting opportunities that will be appreciated by family members and others," says Scott Sarber, vice president, Petersen Hastings Investment Management, of Kennewick, Washington. " And we are not talking about spending less money on gifts. Instead, it's a question of identifying those gifts that are tax-advantaged or will allow you to make needed portfolio adjustments. These are still great gifts, so everyone comes out a winner in the process."

Re those cash gifts, the most you can gift without a tax consequence is $11,000 or $22,000 per couple.

  • Being mindful of the Alternative Minimum Tax (AMT). Not knowing what your AMT tax situation is can cost plenty. Make sure to investigate whether or not the AMT comes into play in your situation and if it does, consider year-end planning to minimize that tax consequence.

  • Don't let Santa mess with your retirement plan. The holiday gift-buying season coincides with the period of time when people who want to fully fund their 401(k) or IRA have to come up with the cash to do so. So, why not give to yourself this holiday season as well as to others.

Kent Kramer, CFP and senior financial analyst, The Foster Group, said: "The gift you buy now may be forgotten in six months, but you will suffer much longer than that if your retirement plan is anemic."

Kimberly Sterling, CPA, CFP and vice president, Resource Consulting Group, Orlando, FL., says that when it comes to tax and long-term financial planning, investors tend to make some of their biggest mistakes during the year-end holiday period. "What people fail to address is that this is the time when they need to be figuring out key tax and retirement plan issues. These matters should be resolved first before spending thousands of dollars on holiday gifts for family and friends."

For more about year-end investment pitfalls---and long-term investing plans-- visit the Zero Alpha Group Web site at http://www.zeroalphagroup.com.

To read more articles, please visit the column archive.

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