In addition to planning your New Year’s Eve and mulling over your resolutions, here are a few more tasks to add to your to-do list. They’ll let you take advantage of expiring tax breaks, beef up your retirement portfolio and improve your overall financial situation. Consider making these five moves before the clock strikes midnight:
1. Make your home more energy-efficient. “There are dozens of energy-related improvements to your home that are going to expire,” says tax expert Barbara Weltman, author of “J.K. Lasser's 1001 Deductions and Tax Breaks.” Conventional improvements like adding insulation, storm windows and more energy-efficient boilers fall into this category. Weltman says that while it’s possible Congress will opt to extend these tax credits, it might not, which means they expire on Dec. 31.
Meanwhile, tax credits for alternative-energy equipment in homes, including solar panels and wind turbines, have been extended through 2016, so there’s no need to put a new year’s rush on those plans.
2. Transfer funds from your IRA into a public charity tax-free. This option is only available to people who are 70 1/2 years old. “At that age, you have to take the required minimum distribution, so this is a way to make it tax-free, while at the same time benefiting your favorite charity,” Weltman says. Lowering your taxable income can also yield other benefits, she notes, including what you pay for Medicare Part B (largely doctors visits) and D (prescription drugs), for example. Just be sure to make the transfer prior to Jan 1.
3. Turn your traditional IRA into a Roth IRA. Since Roth IRAs grow tax-free, those who think they’ll be paying a higher tax rate in retirement than they are now could benefit from this conversion. Just make sure you qualify. The IRA specifies that you can only contribute to a Roth IRA if you earn under certain limits, including under $127,000 for a single person and under $188,000 for married couples. To count for the current tax year, you have a little extra time, but not much – IRA contributions must be made by April 15, 2014.
You can also max out your employer-sponsored retirement plan, if you have access to one. This year’s limit is $17,500, with an additional $5,500 catch-up allowed for those age 50 or older. Contributions to 401(k)s must be made by the end of the calendar year.
4. Schedule last-minute doctor appointments. To use up any remaining flex-spending dollars still left in your account, consider getting your teeth cleaned at the dentist, visiting the podiatrist about that lingering foot pain or checking in with your chiropractor to straighten out your back. Eligible health care expenses can be applied toward your pre-tax health flex-spending account, and any money that doesn’t get used up is lost. Employees typically have until either the end of the year or mid-March to spend the money; check in with your human resources contact about your deadline.
5. Rebalance your investments. Anyone with money in the stock market should check in and consider rebalancing their accounts about once a quarter, say financial advisors, and doing so before the end of the year can give you a chance to get things in order before the new year. That means if you opt to sell off assets that have lost money, you can potentially use those losses to offset any taxable capital gains.
According to a paper by Rande Spiegelman, vice president of financial planning at the Schwab Center for Financial Research, capital losses, which refer to any securities you sell for less than the purchase price, can offset capital gains on your tax return, but the loss sale must occur in a taxable account. (That means this technique doesn’t apply to certain tax-advantaged retirement accounts, like 401(k)s.) Spiegelman also points out that if your capital losses exceed your capital gains for the year, then up to $3,000 (or $1,500 for married people filing separately) can be used to reduce your taxable income.
These steps should keep you busy until it’s time to celebrate – and knowing you have your finances squared away will make the party a little merrier.