Year-End Financial Tips (12/6/2016)

December can be a time of positive family memories and generous gift giving. Taking a moment to consider your financial checklist at the end of the year could help you potentially keep more money in your wallet.

Retirement accounts, such as your 401(k) and similar plans, have a deadline of December 31st for tax year contributions.  The maximum amount that can be contributed to your 401(k) is $18,000 with a $6,000 catch-up provision for those age 50 and older.  Even if you can’t contribute the full amount, you could add an extra amount.  This deadline does not apply to traditional and Roth IRAs.

If you have losses in your stock or mutual fund holdings, you could sell them and write off up to $3,000 in losses against income.  Any amount over $3,000 can be carried over to the following tax year.

Look at your tax liability.  If your income is lower this year, you may be able to take advantage of the lower tax brackets.  This could be a time to convert all or part of a traditional IRA to a Roth IRA.  If, however, you had a good financial year, you may want to defer income until next year.  You could also pay an extra mortgage payment to increase this year’s deduction.

Giving to your favorite causes year-round is important; it can also result in itemized deductions on your tax return.  If it will be more helpful to you for this tax year, make your donation by December 31st.  This includes donations you charge to a credit card before December 31st, even if you don’t pay the bill until next year.

If you are age 70½ or older, make sure you have taken your Required Minimum Distribution (RMD).  If you do not take your RMD by December 31st, you will pay a 50% penalty based on the amount you were required to take.  You can also direct your RMD to a qualified charity and avoid taxation.

You may want to invest in equipment if you own your own business.  Year-end is a traditional time for businesses to buy computers, communications gear, even vehicles, usually qualifying for a deduction. 

If you have already paid your deductible for medical or dental expenses, it may be worthwhile to schedule any needed appointments before year-end. Use up your flexible medical spending accounts (FSA) if funds are still available.

Taking care of yourself financially while maintaining a reasonable budget during this season is one one of the best gifts that you can give to yourself.  

Lisa A. Dugan

December 6, 2016