It’s the end of the year, and as the mistletoe hangs over our heads so does our financial to-do list. Don’t be intimidated by your list this year, though. I’ve gone through and broken down 10 simple steps you can take to protect your finances and put you in a good place for your 2014 taxes.
Step 1: Get Organized
Getting organized might sound silly, but by getting all of your financial documents into one location and in an order that allows you to easily find everything, it’ll make every step after this take half as long.
Items to pull together:
- All relevant receipts
- Cancelled checks
- Income information
- Contribution acknowledgement letters
- Investment income forms
- Settlement statements from the sale or purchase of your home
- Any other financial documents from 2014 that you’ll need for taxes or to keep as a record
Step 2: Think Through Your Healthcare Costs
The Affordable Care Act is in full force now, and most Americans are now required to have health insurance. If you weren’t covered in 2014 you will owe an “individual responsibility payment” of the greater of 1% of household income above the income tax filing threshold ($10,150) for an individual) or a flat amount of $95 for an adult and $47.50 per child under the age of 18. These costs are up to a maximum of $285.
This payment is due with your 2014 tax return. If you were uninsured for only part of the year, just 1/12 of the year’s penalty applies to each month you did not have insurance. Also, if you were uninsured for less than three months you will not have to make a payment. If you don’t have health insurance going into 2015, now is a great time to get signed up as well.
Step 3: Give To Others
Tis the season, so if you’re planning on giving the gift of cash for the holidays be sure to watch how much you’re giving. Before December 31st you can give up to $14,000 to as many people as you would like without having to file a gift-tax return. If you’re married, you and your spouse can give up to $28,000 to others without having to file a gift-tax return.
Step 4: Give To Charitable Organizations
One strategy for tax-reduction is to contribute to charitable causes before the end of the year. If you’re planning on doing this, just be sure to keep your receipts and file them away for all the contributions you made in 2014, and not just those over $250. You can also donate stocks or mutual funds that you’ve held for more than a year. This is great if you have stocks or mutual funds that no longer fit your investment goals. Another option would be to set up a donor-advised fund if the charity you’d like to gift the appreciated stocks or mutual funds cannot accept them in their original form.
Step 5: Itemize Your Deductions
Itemizing your deductions gives you more room to figure out if you need to spend more or less by the end of the year. You can accelerate or delay certain payments so that a larger amount falls within 2014 or 2015. Consider adjusting the timing of your payments with medical expenses, property taxes and charitable contributions. Remember, though, that medical expenses for 2014 are only deductible to the extent that they exceed 10% of your adjusted gross income, or 7.5% if you are age 65 or older. For charitable contributions, just be sure your credit card is charged or you mail your checks by December 31st to make the donation deductible for 2014.
Step 6: Defer Your Income or Bonuses If Necessary
You may want to consider deferring any additional income or bonuses to January if you are in the top of your tax bracket. By asking your employer to hold the bonus you may prevent the need to pay more in taxes. Another option would be to wait to sell off assets that will produce a large capital gain until at least January. Before deferring, though, you should consult with a tax professional to review your tax situation and future anticipated earnings.
Step 7: Set Up Your Retirement Account
If you are self-employed, you actually have the same opportunities for a tax-deferred retirement savings plan as employees who participate in company plans. You have a variety of plans to choose from including SEPT IRAs, solo 401(k) plans, or Keoghs. All of which you can invest tax-deferred self-employment earnings.
Step 8: Contribute The Maximum Amount Possible To Your 401(k)
It doesn’t necessarily have to be a 401(k). No matter if you have a 403(b), 457(b) or employer-sponsored plan, you should invest as much as $17,500 into this account by December 31st. By contributing the maximum amount, your taxable income for the current year will be reduced while your tax-deferred savings will grow. You know I love compounding.
Step 9: Take Your Required Minimum Distribution (if 70 or older)
This step is really just for those reading who are 70 and older. A Required Minimum Distribution (RMD) is the amount of money that you must withdraw from your retirement accounts each year after age 70, or be penalized. By law, you cannot keep retirement funds in your account indefinitely. The required amount is different for everyone, so be sure to investigate all the details regarding RMDs in order to find ways to make tax-free distributions.
Step 10: Make The Most Of Your Losses
Did you know that if you’ve had losses this year due to the stock market, mutual funds, or other investments, that it’s possible to offset your capital gains? Look through your taxable investment accounts and consult with a professional to determine your options. Just remember the “wash sale rule” which prohibits taxpayers from recognizing losses on sales of securities that are repurchased within 30 days.
Once you’ve gotten through this list, go pour yourself a tall glass of Eggnog and kick your feet back. It’s time to enjoy the holidays stress free!
Certified financial planner Wes Moss offers financial and accessible investment advice to Atlanta Bargain Hunter readers.
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