In just a couple days we will be ushering in a new year. It’s hard to believe we’ve completed another trip around the sun. For some, holiday excitement has turned to post-Christmas blues, and those melancholy feelings are compounded by the knowledge that tax day 2014 is right around the corner.
Fortunately, you still have a couple days to make a few money moves that can lessen your tax bill, and get you off to a good start in the new year.
8 Money Moves to Make Before the End of the Year
1. Contribute to IRAs. While you can technically stretch contributions to IRAs into the next tax year (as long as they are made prior to the tax filing deadline of the next year), it is advantageous to contribute earlier if you have the funds to do so. Those contributions will have three or four more months to compound and grow over time.
2. Make charitable contributions. If you are considering donating to charity, you must do so before December 31st to claim a tax deduction. Be sure to hang on to any receipts for donated goods, or canceled checks or credit card statements associated with monetary tax-deductible donations.
3. Make your regular mortgage payment early. If you anticipate owing taxes this year, offset some of the taxes due by moving up your January mortgage payment to December. You’ll get to include the interest paid in your current year tax deductions – assuming you qualify for the mortgage interest deduction.
4. Buy a new(er) car. Car dealers are happy to close a few last minute deals before a new calendar year starts. Since most new models have already been introduced, you can find good deals on last year’s models still in inventory, or better yet, on a used car recently traded in for a new model.
5. Capture gains (or lock in losses) from your investment portfolio. If you have some real dogs in your portfolio, and you have realized gains elsewhere, it may make sense to lock in those losses by selling at a loss. You can deduct up to $3,000 in losses in the current tax year.
6. Update your net worth. I like to update my net worth January 1st of each year. I take inventory of all of my assets and record all debts. The difference yields our net worth. Ideally, this should go up over time, but don’t be overly discouraged if there are dips.
7. Scan copies of year end financial statements. For the last couple weeks, I have been scanning or downloading financial statements from banks, brokerages and credit card companies. I store these copies on a computer and a secure thumb drive for a secondary backup to paper copies.
8. Contribute to 529 college saving plans. Some states allow you to deduct contributions to your in-state 529 plan college savings plan from state taxes. My state allows you to deduct the first $2,000 in contributions, so if I have made less than that throughout the year, I try to contribute at least that amount to capture the deduction.
The end of the year is a good time to set goals for the coming year, and financial goals should be near the top of your list. Set a realistic goal to reduce your debts, build savings, and simplify your financial life. Imagine reflecting on your success next year at this time and use that as motivation to stay on track.