Three things to check off your list before 2012 …

I think it’s safe to say that this week marks the beginning of the mad holiday rush that will last until we ring in 2012 … heck, a biker dressed as Santa even rode by my house this past weekend!

So today I want to spend a little time talking about three financial moves you should be putting at the top of your holiday to-do list right now.

Reason: All of them must be done by the end of the year if you want to reap the benefits come Tax Day, 2012.

The first one is something I remind you do to each and every year …

Start Thinking About Tax Loss Harvesting Right Now!

While most of the fruits and veggies in your area were probably picked a while ago, late fall is the ideal time to harvest so-called “tax losses.”

It starts by taking a look at your investment portfolio and finding any positions that are currently underwater.

Don’t have any? Great!

But if you do, you can sell the position now and then deduct that loss come April 15.

It works like this:

First, if you also booked gains for the year, you’ll be able to offset them on a dollar-for-dollar basis with no limit.

Second, if you recorded more losses than gains — or no gains at all — you can use your losses to offset some ordinary income. The maximum amount is $3,000 ($1,500 if married filing separately) … but you can carry additional losses forward for future tax years.

Doing this before year-end is a no brainer if you have losing positions that you don’t think will ever come back.

You will not only get a tax break, but you can then take the proceeds from the sale and reinvest them in better long-term choices (such as some of my dividend stocks).

Of course, even if you have underwater positions that you would like to continue holding for the long-term, you STILL might consider selling them at a loss for the tax advantage.

Why? Because as long as you wait more than 30 calendar days before buying back those same positions, the loss will count on your tax form.

The IRS applies what is known as a “wash rule.” Basically, they will not recognize a loss if you’ve bought replacement stock within 30 calendar days before or after you sell your losing position. However, if you wait 31 days, you’re fine and the loss counts.

Aren’t tax laws great?

Now, the real risk is that the stock could rebound over those 30 days and you’d miss out. Yet given the recent volatility, I’d imagine you’ll have another chance to buy back in at a similar (or even better) price.

Obviously, commissions are another factor. But if you’re talking about one or two positions — and using a discount broker — the tax write off will more than make up for the little bit of frictional time and cost.

And As We Near the Season of Giving,
Now Is Also a Great Time to Make Donations …

I took a whole bunch of clothes and household items over to the local Goodwill this past Saturday … and I made darn sure to get my donation receipt.

Why? Because as long as you itemize, charitable donations are deductible come April 15.

Here’s some of the fine print straight from the IRS:

“To be deductible, charitable contributions must be made to qualified organizations. Payments to individuals are never deductible.

“If your contribution entitles you to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.

“For a contribution of cash, check, or other monetary gift (regardless of amount), you must maintain as a record of the contribution a bank record or a written communication from the qualified organization containing the name of the organization, the date of the contribution, and the amount of the contribution.

“In addition to deducting your cash contributions, you generally can deduct the fair market value of any other property you donate to qualified organizations.”

If you want even more details, go here.

But suffice it to say that this is one of those rare tax items that helps you do well by doing good.

Last But Not Least, Establish or Make
Changes to Retirement Accounts …

Yes, some accounts — such as IRAs — give you all the way until April 15, 2012 to sock away money for 2011 … but others must be established and/or funded by December 31. For example, if you have access to an employer’s 401(k) plan, your contributions have to be in before New Year’s Day.

So if you’ve been slacking, there should still be time for you to get something in there for this calendar year. Doing so will provide you with more money for the future … the possibility of matched contributions from your employer … PLUS a nice tax break on your 2011 taxes.

Self-employed? Then DEFINITELY consider opening a Solo 401(k) this year.

I’ve written about them in this column before, but I never get tired of saying it: They allow you to sock away as much as $49,000 in just the first year!

But again, you have only until December 31 to establish a Solo 401(k) and contribute any money that is to count as your “employee” part of the overall contribution.

One last thing: This is also the time to consider implementing any changes to existing accounts — for example, converting a traditional IRA to a Roth.

As with all the other moves I described today, personal circumstances will dictate a lot of what makes sense for you personally … and you may be best served by talking to a tax professional to get more information on all the ins and outs.

But my overall point is that — despite the holiday madness — this is also the best time of the year to make important decisions that will affect you well into 2012 … and beyond.

Best wishes,

Nilus