As the year draws to a close, it's time to tie up any loose financial ends. These money moves can help reduce your tax bill, fast-track your financial goals and boost your retirement savings.
Here are 10 financial steps to end 2016 on a financial upswing.
1. Take stock of your finances. Examine your money situation by year's end to determine whether you're on the right financial track.
"One simple way to compare is to look at your net worth (your assets minus your liabilities or debts) once all of your final statements for 2016 come in," says Melissa Sotudeh, a wealth advisor at Halpern Financial in Rockville, Maryland, in an email.
Consider whether your spending is helping you reach your financial goals, she says. Examine whether you've made progress toward shrinking debts and increasing assets, and plot out what you need to change in the new year.
2. Max out retirement account contributions. "If you are funding a retirement plan, such as a 401(k) or 403(b), make sure you are contributing to the plan," says Peter J. Creedon, a certified financial planner with Crystal Brook Advisors in New York City.
Max out -- or get as close as you responsibly can -- when it comes to funding your retirement account. If you're younger than 50, the maximum contribution for 2016 is $18,000. If you are over 50, you can contribute $6,000 more for a maximum of $24,000.
3. Medical expenses. The IRS allows you to deduct medical bills that exceed 10 percent of your adjusted gross income. If you're 65 or older, that threshold is just 7.5 percent, but that's set to rise to 10 percent in 2017. Senior citizens should make sure to rack up any health expenses before the close of the year, says Chris D. Hardy, a certified financial planner, enrolled agent and director of planning and investments at Paramount Investment Advisors in Suwanee, Georgia.
"Grouping medical expenses this year will get a larger deduction than if the same amount is spent next year," Hardy says. If you've already met your annual insurance deductible, it's worth getting any refills on prescriptions before the year ends, too, Hardy says.
4. Call your CPA before the busy tax season. The end of the year is typically busy, but don't procrastinate on this step. Schedule a meeting with your tax guru to discuss income, expenses and taxes before the busy tax season kicks off in the weeks leading up to the April 18, 2017, filing deadline, Sotudeh says.
5. Donate to charity. Make your charitable donations before the year ends to help out your favorite organizations and score a tax benefit, experts say.
One way to really maximize the tax benefit of your charitable contribution is to donate investment gains, experts say. "If instead of gifting cash, you gift appreciated securities, you can receive a double tax benefit of not only the upfront charitable tax deduction but also the avoidance of capital gains on donated property," says Chad Hamilton, vice president of practice management at Mariner Wealth Advisors in Denver, in an email.
A person in the 25 percent federal tax bracket who donates $10,000 (assuming a $2,000 cost basis) in gains to charity, for example, could reduce her tax burden by $3,700 after earning both the charitable deduction and dodging capital gains tax, Hamilton says.
6. Fund your 529. If you or someone in your life is planning to earn a degree, consider contributing cash to a 529 college savings plan, a tax-advantaged education savings account.
7. Request 2016 529 reimbursements. Don't forget to secure reimbursements for educational expenses accrued this past year. "You must make sure that any qualified expenses paid in a particular calendar year are reimbursed in that same calendar year," Sotudeh says.
For example, she says, if you write a check for spring tuition in December, then you must request a reimbursement from the 529 college savings plan before year's end.
8. Earmark your annual raise. Commit to spending your year-end raise (if you're lucky enough to score one) to a financially savvy cause.
"Tell someone close to you that you are going to use half of next year's raise to increase your 401(k) contributions," says Mark Wilson, a certified financial planner in Newport Beach, California, in an email. "If you are fortunate enough to get (say) a 4 percent raise, increase the amount of pay you are deferring into your 401(k) by at least 2 percent."
Other smart uses for your annual raise: accelerating debt payoff goals, such as your student loans or mortgage, or boosting savings goals, such as a down payment or emergency fund.
9. Harvest investing losses to offset gains. "If you sold some investments this year for a profit, consider selling some investments that are at a loss in order to offset your gains," Creedon says. This strategy will reduce your overall tax burden.
10. Set goals for 2017. In addition to wrapping up all of the loose ends from 2016, don't forget to set financial goals and make plans for the next year. Meet with financial planners, advisors and your family to discuss financial plans for 2017 -- and beyond.
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