Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, December 27, 1993 TAG: 9312240028
SECTION: BUSINESS PAGE: A8 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
If you have a personal computer, it's a good opportunity to buy a household finance program such as Quicken to control 1994 records and budgets.
But you don't really need anything as complex as a computer. A simple, small account book with a set of files or envelopes will do nicely.
In the book, simply write down potentially tax-deductible items, such as mortgage interest payments and every prescription drug you buy in the course of the year. You do this the same day you spend the money, so you won't forget.
Drop the receipt in the proper envelope or file. You should have a separate file for every possible tax category. Keep a separate one for your payroll stubs.
Two certified public accountants also suggested taking a look at other aspects of your personal finances for 1984.
Kenneth Prickitt of the Roanoke firm of Young and Prickitt had three suggestions:
Take a look now at any sources of income in 1994, such as a capital gain or a maturing certificate of deposit. Decide early where you will put the money when it comes due in order to get the best yield.
Update your estate planning. Ask your accountant or lawyer whether some assets should be transferred to the spouse with fewer assets to take full advantage of the marital deduction. Ask if you should make gifts of some assets to family members.
Review your pension plan at work to determine if you should make changes. If you are young, resolve to take more risk for greater growth of wealth. If you are older, switch to more conservative investments.
Patrick Budd of the Roanoke firm of Budd, Ammen & Co. drew a longer list of financial ideas for the new year.
He said anyone making a gift to another person for estate-tax purposes should do it early in the year. Consider giving assets that are expected to appreciate during the year, such as stock in a closely held business.
An early contribution to an Individual Retirement Account will appreciate much faster than a contribution at the end of the year.
Anyone who owns a closely held Subchapter S corporation should re-evaluate the way they take salary vs. distributions, Budd said. The 2.9 percent Medicare tax will apply to all salaries next year, so people should pull back salary levels to those of a comparable employee.
Budd said people should consider shifting income into capital gains, which has a tax bracket of 28 percent. People should aim for growth, such as through mutual funds and stocks, not income.
Everyone with a cafeteria-type benefit plan at work should consider making pre-tax contributions for health insurance and other medical costs, for group life insurance and for dependent care, he said.
He estimated that about 75 percent of employees do not maximize their contributions to tax-deferred contributions at work. If the employer matches 50 cents on the dollar, he pointed out, this is an immediate 50 percent return.
People who have set up trusts should take a look at them early in the year. The tax laws have changed, he said, so it may be to your advantage to use the lower income brackets of younger people.
Be prepared to get documentation of all charitable gifts of $250 or more. Budd said a cancelled check will no longer be sufficient under the new tax law.
You might also consider giving appreciated property, such as stock, as a charitable donation, because it no longer will be subject to the alternative minimum tax. Budd said such contributors escape tax on the gain and also can deduct the full current market value - a double deduction.
Bunch your deductions into 1994 or 1995 so that you can meet minimum thresholds.
Retired people receiving Social Security, who face a tax on 85 percent of benefits, might want to invest in savings bonds rather than certificates of deposit. The tax will be deferred that way. Stagger the maturities into different years to spread the income further.
High-income people facing a retroactive tax for 1993 can pay off the excess over the next three years without penalty. Budd said this is like an interest-free loan.
Prudential Securities also offered five financial resolutions for the new year:
Seek to maximize savings with tax-deductible dollars in tax-deferred arrangements.
If your company sponsors a 401(k) or similar plan, make sure you join in 1994 and contribute as much as you can, up to the allowable limit.
If you are self-employed, establish a plan and fund it early.
Save tax-deferred dollars. Retirement savings through IRAs and annuities will grow faster, because earning are not taxed until withdrawal. This added growth can help you realize a more independent retirement.
Review or write your will. Updating your will is critical to ensuring that your estate is distributed the way you want while taking advantage of estate taxation reduction strategies.
Reduce risk. Lowering the odds of financial loss is every bit as important as saving and investing are to building financial security.
For example, check your homeowner's (or renter's) and automobile insurance policies. Do they still adequately cover you against loss of property and exposure to liability?
Is your insurance program sufficient to protect your family against your death or disability?
Reduce debt. Prudential said the quickest and surest means for building wealth is debt reduction, especially debts such as high-interest personal loans and credit-card balances.
Resolve to pay off these debts early in the new year and begin saving those monthly payments you previously sent to creditors.
by CNB