Investor Checklist and 2012 Retrospective

2012 turned out to be a year marked and paced by the political process, beginning with hotly contested primaries, two emotional conventions, three cliffhanger debates, and now, the aftermath of the election and a lame duck Congress.  Once again, the United States has proven a shining example to the world of how the democratic process works, even in a sharply divided nation.  Over the last eleven months financial markets have had to contend with the infamous Facebook IPO, weather-related market closings, the east coast economy savaged by hurricane Sandy, the Fed’s “Operation Twist” and “QE3”, multiple flare-ups of the European debt crisis, and a generational changeover of leadership in China. We reveled in a strong market rally from January until May, suffered through a summer slump, saw gains return through the end of October, only to retreat in November.  The real estate market, so far a no show in the recovery, finally began to show signs of life.  2012 has been in turn a challenging, maddening, frustrating deflating, turbulent and triumphant year. Now, with 2013 just over the horizon, here are a few things to prepare for, and some things to attend to, before year end.

Review your portfolio for gains and losses

The IRS allows investors in stocks, bonds and mutual funds to offset gains against losses in their portfolios. This only applies to your investments held in taxable accounts; not IRAs or 401(k)s. Additionally, gains and losses must be realized, that is to say, they must be the result of a sale, buyout or takeover. If the investment is held for one year or less, it is considered a short term gain or loss, and is taxed at the same rate as other ordinary income, between 10%-35%.  If you have held the investment for longer than one year it is considered a long term gain or loss. You’ll pay no tax if your total income places you in the 10% to 15% tax bracket. If you are in a higher tax bracket, the gain is taxed at 15%, no matter what your tax rate. Caution, these tax treatments are very likely to change in 2013, and capital gains tax may increase.

Last minute charitable contributions

The lion’s share of charitable donations are made between now and December 31st.  Remember, in order to take a tax break you must itemize deductions, the organization must be a legitimate non-profit, and you must have a record of the donation. For contributions of less than $250 you can use a returned check; otherwise you will need documentation from the charity. Non-cash donations of items valued over $5,000 require an appraisal, as well as a signature from the charity on your tax return.

Appreciated stocks or funds provide an excellent strategy to fulfill your charitable intent, and save on taxes as well. When calculating the charitable deduction on a securities gift, you can deduct the market value of the stock, without reference to your cost. So you’ll get the full deduction, and avoid paying capital gains tax on your profit. It’s relatively easy to make this type of contribution if your shares are held at a brokerage firm; you’ll need to get specific transfer instructions from the charity and convey them to your advisor.  Be sure to get started now so you won’t miss the December 31 deadline.

Speaking of deadlines, if you make a pledge this year but don’t actually make the donation until 2013, you can’t take the deduction in 2012. However, you can use your credit card to make a contribution in 2012 and get credit for it in 2012, even though you won’t get your bill until next year.

Make sure your favored charities are spending your money the right way. Unfortunately, natural disasters such as the storm which devastated the east coast brings out all types of bogus charities and fundraisers, looking to profit from other’s misfortune. Steer clear of middlemen hired by charities to act as fundraisers, and deal directly with the charity.  Use online resources such as and, to get detailed information and rankings on an organization’s efficiency.

Looking ahead to 2013

While next year’s tax policy is still up in the air, we do know the contribution limit for 401(k) and 403(b) plans will increase to 17,500 in 2013, with the additional catch up contribution for those age fifty and older remaining at $5,500. IRA contributions will increase to $5,500 in 2013; the additional catch up contribution remains at $1,000. IRA and Roth deductibility limits for those covered by a retirement plan at work have also been raised.

In 2013 high income taxpayers will have to deal with a .9% Medicare tax surcharge on the employee’s portion of earned income. This applies to the extent earned income exceeds $200,000 for a single taxpayer, or $250,000 for a married couple. There will also be a Medicare related 3.8% surcharge on investment income, including interest, dividends and capital gains. This surcharge will apply to the lesser of net investment income, or the amount that total income exceeds $200,000 for individuals, and $250,000 for couples

This year we lost one of our greatest American heroes, astronaut Neil Armstrong. His words transfixed the entire nation, and his first steps on the Moon remain one the most iconic events of our generation.  And music lovers all over the world mourned the loss of Earl Scruggs, Doc Watson, Whitney Houston, Etta James, Levon Helm, and composer Elliot Carter. We are most fortunate to have their music to pass on to our children, and their children. 

In closing, all of us at The Bedminster Group want to wish all of our readers a very happy holiday season and a peaceful and profitable new year.

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