Year’s end a time for planning

“The $10 Trillion Bubble” published last year proposed that the world’s economic values, not just real estate, had escalated to unsustainable levels and a correction was unavoidable. The correction to come would wipe out $10 trillion of paper wealth. I agreed, however, as dramatic as those projections looked in January they were wrong. Losses in the world markets in October alone exceeded $10 trillion, and November may well compare. In aggregate, U.S. taxpayers are on the hook for a trillion in loans, guarantees, toxic assets, etc. as politicians and regulators struggle to “fix” the economy. Billions more are being proposed to fix more.
When I started this column, the title “It’s not about the money” seemed perfect. While we had problems, they were not to a great extent impacting the reader. However, as this downturn drags on, there are few that haven’t been impacted or, at least, aren’t afraid they will be. In fact, fear becomes the biggest enemy. The risk is projecting the current news indefinitely into the future. Remember gas at $140 a barrel and $4-plus at the pump? Experts, the press and most Americans believed it was going to $200/barrel and $8/gallon before year-end. That was July. Where are we now?
While recovery will not be easy and may not be soon, it will come. So now is a good time to think about some year-end planning to take advantage of the current environment and position yourself for the future.
Selling losers: While never fun to take a loss, now is a great time to reposition your portfolio. You may have capital gains from sales earlier in the year, from the sale of a business or real property, or from exercising stock options. Realizing losses now will offset those gains. Additionally, you can write-off $3,000 of capital losses against ordinary income and carry forward unused losses to future years.
Reposition losses: You may have a great stock that has lost value, but is it the best stock for recovery? A competitor or different industry may present a better opportunity going forward. Selling A to buy B may be better than holding A because you always have.
Give appreciated assets to family: Many family gifts are limited to the annual exclusion. With stock prices depressed, your gift this year will go a lot further.
Give to charity: Charities are reporting major drops in donations in the last few months. More than ever, they need your help. This could also be a great time to start your Family Private Foundation. Appreciated assets do not get as great a benefit when given to a private foundation vs. a public charity. Temporarily depreciated assets could be an attractive choice for setting up your family’s legacy.
Get good advice: Not getting this advice from your current advisor(s), find a new one. This is not the time for business as usual.


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