Here are a few money moves you should make before the new year.
You have until December 31 to contribute to your 401(k) or 403(b).
So if you want to reduce your taxable income in April, you should make those contributions now.
TheTraditional IRAis also tax-deferred, but you have until April 15 to contribute to your IRA.
The limit is $5,500 for 2014 ($6,500 if you’re age 50 or older).
Make Tax-Deductible Donations
Donating to charity is just a nice thing to do.
But if you want to reap the tax benefits, you’ll want to do it soon.
Any charitable contributions you make before December 31st will be tax deductible for your 2014 taxes.
So donate your old clothes.
Support your local indie radio station.
Give to a nonprofit.
During open enrollment, you decide how much of each paycheck you want to save in the account.
Like a 401(k), you could deduct the savings from your taxable income.
IRS rules allow employers to carry over $500 of your money into the next year.
Or, they can give you a grace period.
Either way, many people find themselves having to spend their FSA money before the end of the year.
I wrote aboutFSA end-of-year spendinga while back at Bargaineering.
Here are some suggestions on how to spend that money:
Need eyeglasses or contacts?
Make an appointment for a vision exam.
Need to refill a prescription?
Call your doctor and get thee to a pharmacy.
Consider an acupuncture or chiropractic visit, both of which can be paid for with FSA funds.
Purdue University has developed
this handy database
of eligible and ineligible items.
Check out the full post for more suggestions.
1099s are the most common example.
And you have to fill and mail them out before Jan 31st, so you should order them soon.
Adjust Your Tax Withholding
Getting a big tax refund sounds like a good thing.
But really, it’s not.
It means you’re giving the IRS too much during the year.
That money could be better used to pay down high interest debt.
Or, you could save it and earn a little interest.
Either way: ideally, you want to payjust the right amount of taxesduring the year.
No more, no less.
Harvest Tax Losses
We’ve talked about capital gains in our primer oninvesting and taxes.
To offset the taxes on capital gains, some people use capital losses.
They sell any assets that have plummeted, take the hit and report the loss on their taxes.
This is called “tax-loss harvesting.”
Let’s assume this ETF trades off by 10%, falling to a market value of $90,000.
Edward Jonesexplainsthat you have to file by December 31 to receive any state income tax deduction.
There are a few exceptions.
Make Early Tax-Deductible Payments
You might qualify for tax breaks on certain payments.
Make them early, and it’s possible for you to maximize your deductions in April.
Keep in mind, though, this only works with your January payment.
Bankratepoints outthat your mortgage payments are made at the “end of your occupancy period.”
Don’t get greedy, though.
Each year, you’re free to deduct only the home mortgage interest for that year.
They add that you also want to see to it you give that payment enough time to process.
This way, the interest will show up on your annual statement in time.
TurboTax points out that it’s possible for you to also do this withproperty tax payments and tuition.
Check out their post for more detail on each of these.
Take a look at your budget and your spending.
Some of these money-wasters are easy to overlook.
Make or revisit any financial goals.
