7 Last Minute Financial Steps to Take Before the End of the Year
December 26, 2013I hope you’re having a great holiday season! But in-between various parties and celebrations, there are some last minute financial moves to save you money that you might want to make before the end of the year. Here are a few to be aware of:
1) Do you have any money in an flexible spending account (FSA)? If so, try to use it or you may lose it at the end of the year. Keep in mind that you don’t actually need to have immediate needs. For example, if you have money in a health care FSA, you can use it tax-free to stock up on things like prescription drugs and contact lenses and/or eyeglasses that you’ll need eventually.
2) Do you have any investment losses outside tax-sheltered accounts? If so, you can make them benefit you by selling them and using the losses to offset other taxes (including up to $3k per year in income taxes, carried forward indefinitely). Just be sure not to repurchase the same or a virtually identical investment within 30 days of the sale or you won’t be able to take the tax deduction.
3) Are you in an unusually low tax bracket this year? If you or a spouse were in school or otherwise unemployed during the year, this could be a great opportunity to pay taxes at today’s lower rates rather than higher rates in the future. If you have appreciated investments in taxable accounts (there’s a good chance you do considering the strong stock market performance this year) and you’re in the 15% or below tax bracket (capital gains are taxed at 0% in those income tax brackets) or at least expect to be in a higher capital gains tax bracket in the future, you may want to sell those investments and take the gains now. Likewise, if you have any pre-tax IRAs, it could be a good time to convert them into Roth IRAs, pay the tax on them at your current low tax rates, and then have them grow to be tax-free after age 59 ½.
4) Are you in an unusually high tax bracket this year? If so, it could be a good time to accelerate charitable contributions so you can deduct them from this year’s taxable income. In particular, consider gifting appreciated assets to avoid the capital gains tax rather than cash.
5) Do you want to max out any purchases or contributions? While it’s probably too late to change payroll contributions to a retirement plan and you have until April 15th to make IRA and HSA contributions for this year, there are some deadlines ending in a few days. For example, each person is limited to $10k in Series EE bonds, $10k in Series I bonds, and $5k in paper I bonds each calendar year. The deadline for 529 savings plan contributions is also generally at the end of the year if you want to get a state tax deduction.
6) Are you worried about estate taxes? If so, you can start gifting assets away now but you’re limited to $14k per person per year (plus an unlimited amount to your spouse, to political organizations, or for direct payments for medical and education expenses for someone) without having to file a gift tax return. If you’re trying to get money out of your estate, don’t let a year slip away.
7) Are you over 70 ½? If so, you need to take required minimum distributions (RMDs) by the end of the year from any retirement accounts (unless you’re still working there) and traditional IRAs you may have to avoid a whopping 50% tax penalty on the RMD. (You can avoid taxes on up to $100k of your RMD that you donate to charity this year.) If this is the year you turn 70 ½, you have until next year but then you’ll have to take them for both 2013 and 2014 in the same year.
Can you think of any others? Feel free to leave them in the comments below. Otherwise, have a Happy New Year!