Can you believe it’s December already? It seems like the end of the year always sneaks up on us and while I have your attention, I think there are a few smart moves you can make near the end of the year to set yourself up for a fantastic new year.
Even though you will be preparing your taxes in 2014, these are moves you need to do today, while the date on the calendar still says 2013.
1. Donate to Charity
Now is a great time to donate to charity. If you itemize your deductions, boosting your charitable contributions for the year makes sense if you are trying to reduce your tax liability. Make a cash donation to the charity of your choice.
You can even donate physical goods. If you are looking to de-clutter your home, as well as gain a financial benefit, you can donate items in good condition to charity and receive a tax deduction. You can deduct the current market value of your items.
In both cases (cash and goods) you need a receipt from the charity in order to qualify for the deduction. You might also need to estimate the original value of the goods you donate. Keep good records so that your donation provides you with a bit of a financial benefit as well as giving you the warm fuzzies. TurboTax ItsDeductible will track and value your donated items.
2. Contribute to Tax Advantaged Accounts
Before the new year ends, contribute to a tax advantaged account. Your Traditional IRA or 401(k) will provide you with a tax deduction right now. You can also get a tax deduction for contributing to your Health Savings Account (HSA) if you have one.
Contributions to these accounts help you for more than just right now. The tax deferred earnings are more efficient over time, helping you grow your money for your future. Plus, your HSA contribution grows tax free, in addition to providing you with a deduction, as long as you use the money for qualified health care costs.
3. Use the Money in Your Flexible Spending Account
Now is the time to use up any remaining money in your Flexible Spending Account (FSA). Contributions you have made throughout the year are not taxable, but all the money in a FSA doesn’t roll over year to year like the money in your HSA does.
In fact, until recently, none of it rolled over. The IRS recently changed the rule to allow a $500 carryover, otherwise the FSA is a use it or lose it situation. While some companies give you until March 15 of the following year to spend the money, and that new law means that soon you will be able to carry over $500 from the previous year (if you don’t have a grace period), for the most part it’s best to use the money if you can.
Now is the time to make doctor visits, buy qualified medical equipment (including crutches and ace bandages), and even get lasik eye surgery. You can use your FSA money to buy contact lenses, have dental work done (sorry, no teeth whitening), pay co-pays for office visits, and more. Look at what you need done, and then use FSA money where you can.
4. Rebalance Your Portfolio
Now is a good time to rebalance your portfolio. You can make sure that your asset allocation is still on track with your goals. Sell assets that no longer work, or that have changed fundamentally and are losers. You can get a tax deduction for investment losses, so carefully plan which assets to sell, and use them as a way to get a deduction while rebalancing your portfolio.
The end of the year can be a hectic time but if you’re able to carve out some time to take some of these steps, you can position yourself for a better 2014, especially from a tax perspective.