10 End-of-Year Planning Suggestions

As we approach the busy holiday season, it’s easy to let attention slip from personal finance. If you find yourself heading toward the end of the year without checking in on your finances, set aside a few minutes to complete this financial checkup.

1. Use investment losses to offset capital gains: You can use some of your losses to offset capital gains taxes. This can help you reduce your capital gains, and lower the taxes you pay. You have to sell though; paper losses don’t count when it comes to tax filing. You have to sell – and clear – the stocks by the end of the year. If you have $15,000 in losses and $10,000 in gains, you can offset the gains, and still have $5,000 “left.”

2. You can reduce your taxable income by up to $3,000 (if married filing jointly, $1,500 if single) with investment losses: So don’t get too carried away and sell everything.  Carefully consider which investments to sell, and consider how they match up with your capital gains.

3. Carry your losses forward to another year: Since you still have $2,000 “left”, you can actually carry it forward to another year. This way you “bank” your losses for use another year. However, you should be careful; you are still limited on the amount you can reduce your taxable income by, so piling up too many losses can start to lose its luster. Carefully plan out how you will do this. It can be wise to sell investments you think are unlikely to recover in the future.

4. Use up expiring funds: If you have a Flexible Spending Account (FSA) for dependent care, healthcare, or transportation expenses, the funds may be expiring at the end of the year. If they’re not expiring on December 31, they will almost certainly expire by March or April. Purchase additional over the counter medicines if necessary to use up funds in your healthcare FSA.

5. Maximize insurance benefits: If you have to meet an annual insurance deductible and know you have medical (or dental or vision) expenses coming up, try to schedule the appointments before December 31st. If you’ve met your deductible for the year, they’ll cost you less now than they will at the beginning of next year when your deductible resets.

6. Review your tax situation: If you want to reduce your tax owed, you can:

If you own a home, you can make your January mortgage payment early to be able to deduct the interest paid on your mortgage.

If you freelance and want to defer income so as to not owe tax on it, delay your invoicing or extend your due date until January.

7. Start a SEP – If you are self-employed and have extra income, open a self-employed retirement plan so that you can defer taxes on that money until retirement.

If you’re not self-employed and can afford it, consider increasing your 401(k) or IRA contribution through the end of the year. Then think about how to plan to minimize taxes for next year.

8. Keep holiday spending in check: Even if some of the tips above put extra money in your pocket, do your best to control holiday spending. You don’t want to find yourself short on cash come next year.

9. Check your credit reports: You are entitled to a free credit report from each of
the three major bureaus every 12 months. If you haven’t checked one in the last year, pull a copy at AnnualCreditReport.com and dispute any items that are not correct. You can also check your credit scores and see if there is anything that jumps out at you.

10. Review your Estate Documents

Living Trust
Pour over Will
Advanced Health Care Directive
Power of Attorney for Healthcare
Power of Attorney for Finance

If you have these in place, great! — You are already ahead of the game. End of the year is a good time to review these documents and make updates.

These are a few ways I’m making sure my finances are on track as near the end of the year. What did I miss? Tell us in the comments!

Much of the content for this blog was gleaned from the website www.moolanomy.com .  It is a great source for a multitude of financial topics.

About compassrosefp

Certified Financial Planner, CFP, Fee-Only
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