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7 Smart End-of-Year Money Moves

Kimberly Palmer

As the New Year approaches, Jake Gibson, 30, has a few last-minute money moves to make. The co-founder of NerdWallet.com tries to give between 5 and 10 percent of his annual income to charity each year. A self-described procrastinator, he and his wife usually play catch-up in December to make sure they reach that goal.

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"I believe it's financially irresponsible not to get it all in by year-end and minimize your tax burden," he says. "Rather than give that money to the government, which is remarkably inefficient with spending and has little to no accountability, we give it to our favorite charities, which spend efficiently on causes we care about." He and his wife have donated to Robin Hood, an organization that fights poverty in New York City, Room to Read, which focuses on literacy, and DonorsChoose, which lets donors select projects at schools.

Donating to charity is just one smart year-end money move to consider. Others including tapping out health savings accounts, ramping up retirement savings to hit the maximum allowed for the year, and bringing in as much income as possible before midnight on December 31, to minimize the impact of a potential payroll tax increase.

Here are seven smart money moves to make before the ball drops:

Double down on retirement savings. Retirement expert Bill Losey suggests maxing out employer-sponsored retirement plans. Since this year's limit is $16,500 (with a $5,500 catch-up contribution for those age 50 or older), if you're under that limit, you still have time to reach it. If it's too late for you, you can always get a jump-start on next year, when the limit goes up to $17,000.

Get new glasses. If you haven't spent the money in your employer-sponsored health savings account by the end of the year, you might want to consider stocking up on eligible expenses, from new glasses to contact lens solution. In most cases, money that isn't spent is forfeited. The deadline for 2011 expenses varies, but many companies extend the deadline to mid-March 2012. Be sure check the list of eligible expenses because some items changed this year; in February, the IRS announced that breast pumps and related nursing supplies now qualify.

Bring in as much income as possible before the clock strikes twelve on December 31. Due to Congressional gridlock, the payroll tax cut might expire in 2012, which would affect 160 million Americans. People earning $50,000 a year would pay an additional $1,000 in taxes; those earning $75,000 would pay an additional $1,500. That means anyone who has flexibility in when they earn income, such as freelancers or consultants, could benefit by bringing as much as possible into 2011 instead of leaving it for 2012, when the tax rates could be higher.

Give a cash bonus to family members at Christmas. This tip applies primarily to wealthy Americans who face a potential increase in the estate tax after 2012. According to the tax firm CCH, Congress is likely to lower to estate tax exclusion to $3.5 million from $5 million, as well as increase the top tax rate to 45 percent. That means anyone who could be affected by those changes might want to consider giving more money to family members now, before death and before those tax hikes. Donors can give up to $13,000 per person without paying taxes.

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Stock up on stocks. The tax experts at CCH also point out that maximum capital gains tax rate could go from 15 percent to 20 percent or higher after 2012. Investors will need to purchase stocks or other capital assets before the end of 2011 in order to qualify for long-term capital gains rate by the end of 2012.

Get a new roof. Because a handful of energy-efficient tax breaks require the purchase of materials before Jan. 1, 2012, homeowners should consider investing in those improvements before the end of the year. According to CCH, certain types of insulation as well as roofing and HVAC systems are eligible. (The 2011 credit amount is capped at $500.)

Create a college savings account. Any contributions made to 529 college savings accounts before December 31 are tax-deductible for the year. Plus, contributions make great presents, according to T.D. Ameritrade, since anyone can contribute, including grandparents and friends. As long as the money is used for higher education, it is not subject to federal income taxes and in some cases is also exempt from state income tax.

Twitter: @alphaconsumer

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