10 Financial Things To Do Before Year End


There are a lucky 13 days remaining in 2014 it’s not too late to consider at least one of these financially savvy ideas:

  1. Taxing matters

If you’re paying estimated taxes, now would be a good time to review your payments, especially if you had a big change in income from the prior year, Estimated tax includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes and awards. What do you need to pay? Generally either 90% of the tax to be shown on your 2014 tax return or 100% of the tax shown on your 2013 tax return.. You want to avoid under-withholding penalties and nasty surprises when you file.

  1. Take your RMD

Generally, you have to start taking withdrawals — required minimum distributions or RMDs — from your IRA or retirement plan account when you reach age 70½ or if you own an inherited IRA account. If you don’t take your RMD before December 31, 2015 you may be subject to a significant tax penalty. The penalty is 50% on the amount you should have taken as well as the ordinary income tax due on the distribution

  1. Consider a Roth conversion

Crunch the numbers to see if a Roth conversion, either with your traditional IRAs and/or within your 401(k), makes financial sense this or next year. Consider what might happen to tax rates. Will federal tax rates be higher or lower in years to come? Will you be in a higher or lower tax bracket in the future vs. today? If tax rates rise and your tax bracket will be higher, converting all or a portion of your IRA/401(k) to a Roth could make sense. Also consider if you have the funds to pay whatever ordinary income taxes will be due. Finally having both traditional IRAs and Roth IRAs will provide you with a tax diversification. In years to come, you’ll have the ability to withdraw money from whichever retirement account provides you with the most after-tax income.

  1. Maximize your retirement contributions

Contribute as much as you can into your 401(k) this year. The limit for 401(k) plans this year is $17,500 and $23,000 for those 50 and older. In addition, if you are able, don’t forget to contribute to your traditional and/or Roth IRA and your health savings account (HSA). And finally if you’re self-employed we recommend setting up and contributing to any number of retirement plan options including a solo 401(k) or a Simplified Employee Pension (SEP).

  1. Drain your flexible spending account

Use up the money in your flexible spending account (FSA). Great news… the IRS changed the long-standing “use-it-or-lose-it” rule. Employers can now offer a carry-over of up to $500 in unused health FSA funds to the following year or to continue a grace period option giving employees a 2½ month extension to spend remaining FSA funds. Contact your employer as they aren’t obligated to offer the carry-over or the grace period option.

  1. Review realized and unrealized gains and losses

In non-tax deferred accounts, review realized and unrealized gains and losses and see if gains can be offset but selling some losses. Realized capital losses, generally, are first offset against realized capital gains. And any excess losses can be deducted against ordinary income up to $3,000… Losses in excess of this limit can be carried forward to later years to reduce capital gains or ordinary income until the balance of these losses is used up.

7. Donate to Charity

If you’re looking for ways to cut your 2014 tax bill and feel good this holiday season, consider donating to a charity or a donor-advised fund. If you want to claim these donations for a tax deduction, you must itemize your deductions rather than taking the standard deduction. Besides giving cash to a charity, consider donating highly appreciated stock. By donating highly appreciated stock you won’t owe capital gains taxes and can deduct the current value of the investment as a charitable gift

  1. Review Medicare and Social Security benefits

Review your Medicare, supplemental and prescription drug plans, and especially the latter if you have changed medication. Also, figure out when you (and your spouse) should take your social security benefits. The earliest is at age 62, the latest is age 70. After 70, your benefits no longer increase. Your full retirement age depends on the year in which you were born. Taking your benefit before your full retirement age can limit social security strategies available to you and your spouse.

  1. Gifting

For those individuals with a potentially large estate, annual gifting can help reduce a potential estate tax bill. For 2014, the amount you are able to gift to each individual excluded from the gift tax is $14,000.

10. Back to the Basics

The end of the year also is a good time to review your yearly budget and make sure you’re on track. Also, check your emergency fund. And don’t forget to review your estate documents. Did anything in your life change? If so (and even if not), look over your wills, trusts and beneficiary designations, and make any necessary changes.

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