How (and why) should you review your investments for Tax Deductions?!

Today my monthly reminder popped up to: Review my portfolio for tax deductible losses, IRA, SSA benefits, and more".  And I was just thinking how many people would know exactly what to look for.  My guess is: many.  But not all would be 100% certain they are looking at the right thing.  So to accomplish # 1 on the list of things to do in December I would:

Check my investment portfolio for loss-harvesting candidates:

Which means look for positions that have an "unrealized" loss.  You can deduct as much $$$ in capital losses as you have in capital gains and an additional $3,000 can be tax deductible.  So if you had a lot of positions that you sold at a gain you can and should look through your portfolio to sell off some less desirable stocks with an unrealized loss to realize the loss.  This loss will allow you to offset your capital gains and will save you the capital gains tax on your winners. 

As you "rebalance back" to your strategic, long-term asset allocation - means if you traded out of positions your portfolio may no longer reflect the asset mix of 20% in equities, 20% in bonds, and 60% in futures (just kidding) but you understand that after trading out of certain positions you may have a different investment mix than prior to your trades.   This provides an opportunity to sell out of loser positions and use the extra cash to fill in the gaps in the securities that align to your planned portfolio mix.

Always remember not to buy into the same positions within 30 day of the sale because that will render the trade useless for tax purposes.

This Forbes article How to Pay Taxes Like Mitt Romney is a good reference: http://www.forbes.com/sites/financialfinesse/2012/01/25/how-to-pay-taxes-like-mitt-romney/

Here is the remainder of the December to do items on my Financial Calendar:

2) If you want to establish an Individual 401(k) or other QRP (qualified retirement plan) this year for your small business, the account must be opened by December 31.

3) If applicable, don't forget to take the annual required minimum distribution from your IRA by December 31.  - If you are 70 and 1/2.

4) Request your annual Social Security benefit statement from ssa.gov. Compare your earnings record against your old tax return info for accuracy.  - Yep, Social Security Administration may make mistakes.  It also will help to have this document for your updated plan for next year.

Whole life insurance versus Term. You could be mising out on thousands in savings!

Let’s review the following situation.  Mike, a young man in his 20s bough a whole life insurance policy for $1,600/year.  Fast forward ten years, the policy’s current value is $1,300 and policy coverage is $95,000 in the event of death.  This policy was sold as a supplement to disability insurance, i.e. the value of the policy could be used as a savings bond/savings account in the event of the insured’s disability.

Let’s revaluate an alternative scenario.  What if Mike bought term life insurance at $250/year and allocated the remaining $1,350 to a savings account that earned 2.5%.  He would still have his insurance coverage of $95,000 but his savings value would be at $15,503.

Whole Life v Term Life Insurance

Comparative table

	Whole Life	Term Life Insurance
Annual Premium	$             1,600	$                 250
Death Benefit	$           95,000	$           95,000
10 Year Cash Value of Insurance	$             1,300	$                    -
10 Year Savings	$                    -	$           15,503

In this example, over a ten year period Mike could have saved $12,200 more if he opted to buy Term Life insurance.  If your whole life insurance coverage is more than $95,000 and your annual premium is higher you could be saving more!!!  There is a limited number of circumstances in which whole life policy is a better solution than a simple term life policy.  You should discuss the advantages of whole life insurance with a financial professional that is not commissioned for selling insurance products.

Five Factors that affect Your Credit Score

Recently I reviewed a book by Joe Lance Letizia "The complete Guide to a Higher Credit Score" and was surprised by this interesting statistic: "studies indicate that individuals with 6 or more (recent) inquiries on their credit reports are 8 times more likely to declare bankruptcy than those with no inquiries on their report".  Here is a brief Summary from the Chapter on Credit scores and the Five Factors that affect them:

Component	%	Details
Payment History	35%	Payment information on all types of accounts: credit cards (visa, AmEx, Home Depot), installment loans (mortgages, auto, student).  Public Records and Collection items: bankruptcies, foreclosures, lawsuits, etc.  Details of delinquencies: late or missed payments, etc.  The number of accounts with no late payments: timely payment history will increase your credit score.
Length of Credit History	15%	The length of time your credit accounts existed.  And history of use on certain types of accounts.
Credit Mix	10%	The types and Quantities of credit accounts.
Amounts Owed	30%	Amount you owed on all your credit accounts.  Overall amount you owe on credit cards and other accounts.  The types of loan balances.  The number of accounts with a balance.  The amount of credit line used on credit cards and other revolving accounts.  The amounts still owed on installment accounts.
New Debt/New Credit	10%	The number of New accounts you have.  How recently they were opened (a lot of new cr5edit accounts indicates higher risk).  How many recent credit requests you've made.  Certain studies indicate that individuals with 6 or more inquiries on their credit reports are 8 times more likely to declare bankruptcy than those with no inquiries on their report.