There may be a few moves we can make that can help your tax hit before we’re forced into “reaction mode” — which is the only mode out of which after-the-fact tax work can be done. So, if at all possible, I’d like to change that paradigm for you by having you answer a few short questions…

So, without further ado — some questions for you:

Have you had a significant change in your wage income this year?

Have you taken capital gains or losses this year? Are you planning to?

Did you start or sell a business this year?

Did you purchase real estate?

Did you make your full contributions to retirement accounts?

Have you considered a Roth IRA?

Did you withdraw from retirement accounts, and for what purpose?

Are there any other issues you think we should know about?

Now — the answers to these questions form the “tip of the iceberg”, and they will help us to know which direction to take as we work with you.

1. Energy credits are still worth taking. The tax credits for certain basic home improvements — including the installation of insulation, certain HVAC systems, water heaters, windows, doors, and roofing — are skimpier this year.

But what’s worse than skimpier credits? Why, *NO* credits, of course. And since there are no good signs of these credits being renewed, it’s time to get a move on! Go to www.EnergyStar.gov to get specifics.

2. Use capital losses to your advantage. If you have some portfolio losers, but you still like them, now is the time to grab those deductions by selling down positions. After 30 days, you can safely re-purchase any stocks which look like they could still be long-term winners, and retain the capital loss deduction safely (but if you do this before 30 days, you don’t get to record the loss).

3. Re-characterize a Roth back to an IRA. If you converted a traditional IRA to a Roth in 2011, and have since suffered huge losses, you might want to reverse the conversion (which is called a recharacterization).

The reason: Your tax bill is based on the IRA’s value at conversion, so you’ll owe income taxes on money you no longer have. Even better, you also still have a chance to recharacterize a 2010 conversion, but act fast. That deadline is Oct. 17.

I’ll have plenty more to say on these and other subjects as we get closer to the end of the year — but the BEST thing may be to have us sit down with you and take a clear look at your exact situation with you

Hidden Mistake #1: Inappropriate Mental Accounting

Definition: Tendency for families to divide money into separate accounts based on subjective criteria.

Typical Example: Treating $100 you received as a gift from Grandma, differently than a $100 bill earned.

Typical Example #2: Having money languishing in a savings account earning 0.25%, while carrying high-interest debt to pay off at 12%.

Cure: Funnel income, no matter the source, into one savings account.

Any “found money”, such as a tax refund or gift from Grandma, quickly decide where that money is best utilized. As for expenses, occasionally change how you pay. If you always pay with a credit card, try cash. This will get you remembering that all of it, for the purposes of your mental “books”, should be lumped into one, monthly bucket.

Hidden Mistake #2: Manipulative Price Anchoring

Definition: Our tendency to relate the value of a purchase to a price point which, rationally, should have no bearing on the amount spent.

Typical Example: The “rule of thumb” to spend two months’ salary on an engagement ring.

Typical Example #2: A realtor will tell you that “in 2007 this house was going for $500,000 and is now listed at only $350,000!” … causing you to think this house is undervalued.

Cure: For big ticket purchases like a house, car, or engagement ring, ask a friend whose financial values you respect for their input.

For everyday purchases, avoid looking at the MSRP or sticker price. Ask yourself:

Can I afford this today?

What do I really want to spend?

What is this really worth to me?

Marketers are experts at this sort of price-anchoring, and we really should know better … but yet we still fall prey to it. Try not to let outside sources set up the comparison by which you should be considering such large purchases.

Hidden Mistake #3: Loss Aversion Costing You

Definition: Our consistent tendency to avoid loss, rather than acquiring gain.

Typical Example: An investor is more likely to sell a stock which has increased in value, rather than selling stock that decreased. Over time, her investment portfolio is made up of investments that have decreased.

Cure: Don’t think of selling a stock for less than you paid for it as being a loss. It can actually work as a gain for two reasons:

* Tax deduction (which can really help!)

* The other side of opportunity cost: opportunity GAINED (i.e. you can better utilize that money elsewhere)

So, don’t check your portfolio so often. If you don’t know you’ve lost money, you don’t experience the pain. (And riding the roller-coaster of your portfolio’s value is a waste of emotional space.) Since stock prices go up in the long-run, the longer you go without looking at your portfolio, the greater chance of seeing a gain. Sometimes taking that loss really is the best thing you can do.

Hidden Mistake #4: Following the Herd

Definition: The tendency for us to want to do the same thing as a large group of others, with no thought to whether that action is rational or irrational.

Typical Example #1: Buying when prices are high because everyone else is.

Typical Example #2: Selling when prices are low because everyone else is.

Cure: Warren Buffett said, “Be fearful when others are greedy and greedy when others are fearful.”

Keep this in mind when making your next financial decision. If everyone is telling you to buy this or buy that (i.e. gold, silver, real estate) do the opposite. In the financial investment world, if it’s too good to be true, it usually is. Write up an investment policy statement or contract. Include factors such as:

* Investment objective

* Investment goals

* Desired asset allocation and diversification

* Summary of your risk tolerance

* Rebalancing schedule

Before making any changes, consult with this contract. You can also take advantage of this inherent tendency to do what’s approved by others to affect positive behavior. For example, let’s say you trying to pay off debt. Tell your 3 closest friends, make an informal contract, sign your name at the bottom, and then email it to them. The pain you would incur from breaking that contract is high relative to the pain of breaking your behavior if you went about it alone.