If you’ve looked at a calendar recently, you know that the year is drawing to a close. Before you run out of year, it’s a good time to make a few financial moves. The right actions now could mean a better financial start to the coming year. Here are 7 financial moves to make before the end of the year:
- Run a rough estimate of your taxes
Do you have an idea of what you will owe next April 15? “The first thing I recommend to everyone is to run a rough estimate of your taxes,” says Kate Horrell, a finance educator and writer at KateHorrell.com and Military.com. She points out that understanding where you’re at can provide you with a starting point as you plan the rest of your year-end moves.
Additionally, you can get an idea of where you stand in terms of whether you will be able to pay your bill. Compare what you expect to owe with what you have paid so far (a pay stub should provide year-to-date information on taxes paid). If it looks as though you are going to owe, now is a good time to start setting aside a little extra each month so you aren’t scrambling around later.
- Review your current year
Now is a good time to see how you’ve done this year with your financial plan. “My husband and I normally start our year-end review between October and November,” says Shareeke Emead-Nesi, the CEO of The Conscious Spender. “We look at how our investments are doing, and decide whether we should sell anything.”
Emead-Nesi also takes a look at spending categories from the past year. She looks at whether she needs to adjust expectations for spending in certain categories. “Review your transactions, and make sure you understand any that aren’t categorized,” she suggests. That way, you’ll be able to figure out how to proceed next year.
- Plan what you want to do next year
Emead-Nesi also looks at what she wants to do in the upcoming year, identifying major life events that might come up. She and her husband are thinking about having another child, and they are considering whether or not to put their daughter in a private school. “We research costs and trends, and try to figure out what we need to do in order to meet our goals for the coming year.”
Take the time now to consider what you want your life to look like in the coming year (and determine whether or not it’s realistic), and you can begin making plans right now so that you can hit the ground running in January.
- Clear out your house and donate to charity
“Take advantage of tax deductions on charitable goods donations,” suggests Horrell. If you are moving, or if you just want to clean out the clutter, now is a good time to do so. You can deduct the market value of charitable donations in good condition. You need to get a receipt for the items, though.
You can also make other charitable donations this time of year. If you are looking for more itemized deductions, it can make sense to give cash donations to charity, or to increase what you are giving to your church.
- Increase your retirement account contributions
This is another good way to get an extra tax deduction while boosting your future. “I found that my husband would be $400 short of maxing out his IRA this year,” says Horrell. Now, she can plan to add more to the retirement account.
You can also use this reasoning for your 401(k) or 403(b). At the very least, review your company’s match program, if applicable. Make sure you are getting the maximum match, and consider adjusting your retirement contribution so that you aren’t leaving free money on the table.
Horrell also suggests looking into other retirement planning options. “If you have a small business on the side, you might be able to open a SIMPLE IRA or a SEP IRA.
Don’t forget about Health Savings Accounts. Your HSA (if you qualify) provides you with a tax-deductible contribution, and it allows you to grow your money tax-free for the future. It’s another retirement supplement that can be used, if you plan it right.
- Tax harvest investment losses
Emead-Nesi and her husband use the last couple of months of the year to review their investment performance. When it comes to equities in taxable accounts, they decide whether it makes sense to cut some of their losses. They can sell for a loss, and then receive a tax deduction for those investment losses.
Consider your portfolio. You can use investment losses to offset capital gains, as well as up to $3,000 in other income each year.
- Use the money in your FSA
If you have a Flexible Spending Account, now is the time to make sure you are using the money. While recent laws make it possible for you to carryover a small amount in your account in some cases, by and large it’s still a “use it or lose it” proposition. Find out how much you have left, and schedule eye doctor and dentist appointments, as well as buy qualified medical equipment that you might need.
With a little planning now, you should have just enough time to close out the year right, and prepare financially for the new year.