Friday, December 16, 2016

Year-End Financial Strategies

The year is almost over, but there are still a few things you can do to get your financial house in order. The goal? Don't leave money on the table, and try to optimize your tax situation for 2016 and 2017.

Here are some suggestions:

Spend the money in your Flexible Spending Account (FSA). Most accounts are use-it-or-lose-it, and funds have to be depleted within same calendar year. Refill that prescription, have your teeth cleaned, order a new pair of glasses or contact lenses.

Make charitable contributions. If you itemize deductions, you can reduce your taxable income and help the causes you care about at the same time.

Evaluate deductions. For example, maybe you can accelerate property tax payments, business expenses, professional dues, or make your January mortgage payment early. Or you might be able to defer or accelerate certain income and/or expenses for the most favorable tax impact.

Contribute to your retirement account. You only have until the end of the year to fund your 401k (maximum $18,000; an additional $6000 if you're over 50), but you can make 2016 contributions to an Individual Retirement Arrangement (IRA) through April 15, 2017. If you have a Health Savings Account (HSA), you can also make contributions for 2016 through next April.

Evaluate your investments. If you have capital gains, see if you can unload some losing investments to offset them. While taxes should not determine your investment strategy, you can take the sting out of a bad investment decision or mitigate the tax impact of a gain with a little clever balancing.

Give appreciated securities. Kill two birds with one stone by donating assets such as stock or mutual funds instead of cash to a qualified charity. If you sell the stock first and donate the proceeds, you'll only be able to deduct the amount of cash generated by the sale, and you will pay income tax on the gain, which could be sizable if the value of the asset has increased since you acquired it. But if you transfer the asset directly to the charity, you pay no capital gains tax, deduct the fair market value of the asset at the time of transfer, and the charity gets more money out of the deal. Check with the institution holding the asset and the charity receiving it to work out the details.

What suggestions to you have for end-of-the-year financial moves? I'd love to hear your comments.

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