5 Financial Loose Ends to Tie Up Before the New Year
As you head into the end of the year, it'll be easy to get bogged down while shopping for gifts and planning holiday parties. But it's a good idea to take time to do a bit of financial housekeeping as well. If you haven't added any of these financial moves to your holiday to-do list, tackling them now can ensure that you're on the right track when January rolls around.
1. Put Your FSA to Work
If you have a flexible spending account (FSA) through your employer, you'll need to act fast to make sure you don't miss out on any benefits. These plans typically have a December 31 cutoff date and if you don't spend your balance down by then, it might not carry over into the new year. The IRS lets employers extend the deadline until March 15th, but not all companies agree to do this.
FSA funds can pay for many medical products and services, including eye exams, glasses and contact lenses. You can also use the money in your account to cover the cost of a visit to the dentist or the chiropractor. Since so many expenses can be paid for using the money in your FSA, there's really no excuse for letting that money slip through your fingers.
2. Get a Tax Break for Giving Back
The holiday season is all about giving and making a charitable donation or two can work to your advantage. According to the IRS, you can deduct donations of cash or goods to qualified organizations, generally up to 50% of your adjusted gross income for the year. If you normally itemize your deductions, you can reduce your income tax burden by writing off your contributions.
If you'd rather donate your time instead of your money, you can still get a deduction for your efforts. Under the tax code, certain expenses that go along with volunteering are deductible, including required equipment, uniforms and travel expenses. Just keep in mind that you'll need access to all of your receipts to support the deduction.
3. Get Your Paperwork in Order
Tax season officially kicks off in January. And the more prepared you are, the easier it'll be to file your tax return. At the end of the year, it's a good idea to go through your files and clear out any paperwork you don't need.
You can sort out receipts for your deductible expenses in one pile and organize important financial documents like investment statements in another. Then you can recycle copies of old bills and anything else that's just taking up space.
4. Take Required Minimum Distributions if Necessary
If tax-deferred accounts such as a traditional IRA, 401(k) or SEP-IRA factor into your retirement savings strategy, you're required to withdraw a minimum amount of money from them each year once you turn 70 1/2. With the exception of the year in which you reach that milestone, the deadline for taking the required minimum distribution is December 31. If you don't pull the money out in time, you'll be subject to a 50% tax penalty on the amount you were supposed to withdraw.
5. Make Financial Gifts to Your Heirs
The federal gift tax comes into play when you give money to individuals instead of charities, but it's possible to get around it with some careful planning. For 2015, you can gift up to $14,000 per person without having to worry about the tax. The limit doubles for married couples filing jointly.
If you've got a sizable estate, handing out your money annually could be better than divvying up your wealth in a will. The more you give away now, the less estate tax your heirs will have to pay later. And as long as you're staying within the annual limits, you can avoid the gift tax.
Bottom Line
The way you end one year sets the tone for how you start the next one. Tying up all of your financial loose ends is important if you want to make a smooth transition into the new year.
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