WiseDollar

As the end of the year draws near, it is a good time to make plans to wrap up your finances and look ahead to the next year. There are several things that you should do before the end of the year, and here are six of them.

Getting Tax Losses Back

If you sold a stock earlier this year for more than what you paid for it, then you will need to pay capital gains taxes on the profits. The good news is that you can use a loss from another stock to offset your gain. This will ultimately decrease the capital gains taxes you owe. For example, if you gained $3,000 from the sale of one stock but lost $3,000 elsewhere, then you do not owe any taxes on that gain.

You can use up to $3,000 from any losses to offset your income. If you earn $100,000, and you lose $3,000 from your stocks, then your total taxable income would be $97,000. If you lost more than you gained, then you can move these losses to the next year. It is important to know that you cannot claim a loss on the stock if you sell it and then purchase it again within 30 days.

Contributions to Charity 

A cash gift is one of the least advantageous ways to give to charity when it comes to tax benefits. If you want to give a stock, this is a good time to do it. However, if you cannot decide on the right charity, then you can give a stock to a donor advised fund (DAF). This allows you to get the tax deduction this year and wait until next year to decide who will receive the funds from your DAF. This can also help you organize your gifts into one location.

Contributions to 529

You can always contribute to a 529 savings account for college. This account has a few tax benefits because it allows for both growth and distributions that are free of taxes. For example, you can use the account to pay for books, tuition, and other fees without having to pay taxes on the money. 

One newer tax change allows you to take distributions from the account for private high schools and elementary schools, as well. This allows you to distribute up to $10,000 each year. You may want to consider contributing to a child?s, grandchild?s, niece?s, or nephew?s account at the end of the year.?

While you can contribute to this account at any time, there is not a tax deduction if you contribute. You should keep in mind that there are limits to what you can contribute, so it would be wise to start saving as early as possible for college tuition and other expenses.

HSA and FSA

It is usually best to plan to spend the money from your flexible savings account by the end of the year. However, there are some exceptions to this rule. For example, you can sometimes carry over funds or have a grace period, depending on what type of FSA account that you have. It is a good idea for you to check with your employer about the specifics of your plan. 

If you cannot carry over your contributions to the next year, then you will want to plan on having your dental or other doctor visits before the end of the year. If you have prescriptions, you can consider getting these before the end of the year, as well. More expensive prescriptions, including glasses, are also considered to be eligible under FSA.

On the other hand, a health savings account (HSA) can carry over to the next year. The deadline to contribute to this account is April 15. This means you still have time to contribute to this account and count this contribution toward your taxes this year. If you are over the age of 55, then you can contribute an extra $1,000 to this account.

Retirement Plans

If you have a 401(k) at your workplace, then you can still contribute to it. If you are over the age of 50, then you can contribute an additional $6,000 per year. If you have not contributed to it recently, then the deadline is April 15. This means that you can still contribute to it and receive some reductions on your taxes this year.

Required Minimum Distributions (RMDs)

If you are over the age of 70, then you will be required to take a minimum amount of money out of your retirement account every year. This can include IRAs, SEP-IRAs, and your 401(k)s if you are not currently employed.

If you do not take out a required minimum distribution, then you will face a large penalty. This can be steep at half of the amount you were required to take out. For example, if you were required to take out $3,000 and you did not, then you will still need to take out this amount, as well as pay $1,500. If you have inherited IRAs from family members, you may need to take out some money from those, as well.

Retirement Planning

Everybody should eventually have a retirement plan in place. Approaching retirement without knowing if you will run out of money is very dangerous. There are so many good tools online these days that many people don?t even need a financial planner. For do-it-yourself types, the best retirement planning application is WealthTrace.

This retirement planning tool allows consumers to build a full, detailed retirement plan and see how various what-if scenarios will impact their overall retirement. For those who do not want to create their own plan, it is a very good idea to find a qualified financial planner to help you figure out if you are on the right track.

Closing Thoughts 

If you follow these steps at the end of the year, then you will be able to successfully wrap up things with your finances. This can help you maximize your deductions from taxes while reducing the likelihood of any losses.