Year End Money Moves

With the end of the year less than a month away, I thought I’d put together a list of five money moves to make in the next few weeks. If you have any suggestions of your own, please be sure to post them in the comments.

1. Spend out your Flexible Spending Account. While you typically have until sometime early next year to make claims against your FSA, eligible expenses actually have to be incurred this year. So if it looks like you’ll end up having money left over at the end of the year, it’s time to get creative. Buy a new pair of glasses, stock up on eligible non-prescription medications, etc. If you don’t, you can kiss that money goodbye.

2. Make your 529 contributions for 2007. In case you’re not aware, contributions to 529 college saving plans need to be made by December 31st if you want them to count for this year. The reason for this is that 529 contributions are subject to the annual gift tax exclusion, meaning that a donor can contribute up to $12k to an individual each year without having to deal with gift taxes. The same goes for Education Savings Accounts (ESAs) — technically, you have until April 15th to make your contribution to an ESA, but such contributions are subject to the gift tax so making it before the end of they year has its advantages.

3. Modify retirement contribution amounts for 2008. I actually just did this two days ago. We got a late start on our maxing out my 403(b) and 457(b) last year, so our monthly contributions have been a bit on the high side. Thus, I turned in the paperwork to adjust them down a bit for 2008. With the holidays looming, this isn’t something that you want to leave until the last minute — in fact, my employer’s HR office closes down on December 21st and doesn’t re-open until after the New Year.

4. Charitable donations. This should go without saying, but December 31st is the last day to make charitable contributions and be able to deduct them from your current year’s taxes. So don’t leave things to the last minute like we did last year — if you do and any problems crop up, you won’t have time to get things straightened out.

5. Clean out the house. This should probably be lumped in with charitable contributions, but it’s cathartic enough that I thought I’d split it out on its own. Every year around this time we get serious about cleaning out our closets, the garage, etc. and donating our extra stuff to charity. Part of out motivation for doing this is to start the New Year with a clean slate, but an equally important part of our motivation is to capture a nice tax deduction before the year ends. Just be sure to get a receipt!

Like I said above, if you have any suggestions of your own, please add them in the comments.

15 Responses to “Year End Money Moves”

  1. Anonymous

    I have a related question – my property tax bill says Tax Year 2007-2008. The third and final payment is due in February 2008. Someone told me that if I pay it in December, I could deduct that from my 2007 income. Is that true? This would be very beneficial to me because next year I expect to have lower income than this year but also I will contribute more to 401k, so it would help me to shift this property tax to 2007.

  2. Anonymous

    It is rather amazing how many people do not empty out their flexible spending accounts. Those flexible spending accounts are great tools, so use them everyone!

  3. Anonymous

    If your itemized deductions are close (in $ terms) to the standard deduction, consider delaying property tax payments and charitable donations into January 2008, or order to “bunch deductions” into 2008.

    With this approach you take the standard deduction in (for example) odd years (2007), and then itemized with ‘doubled up’ deductions in the even years (2008).

    For folks whose itemized deductions are close to the standard deduction then this this increases your tax liability in the years where you take the std deduction, but it decreases your tax liability in the alternate years where you itemize with 2x worth of certain deductions.

    You have to run the numbers for yourself to see if it works (e.g. if bunching deductions causes you to hit AMT then all bets are off).

    Just google “bunching deductions”, there are lots of articles on this, and lots of other ways to take advantage of “bunching”.

  4. Anonymous

    Hey Nickel:

    #1 & #5 speak to me.
    One year, in Dec. I had so much in my flex spending account that I went hunting for ways to spend the funds (New eyeglasses!)

    And of course, I love the idea of purging the house. I agree: very cathartic.

    Take Care,

  5. Anonymous

    In regards to item 1, my employer allows until March 15th of 2008 to actually INCUR EXPENSES for my 2007 FSA.

    Apparently, my employer isn’t the only one, as this excerpt from Yahoo! Finance ‘Four Top-Priority Tax Tasks (and What You Can Blow Off… for Now)’ explains:

    Can wait: Using up last year’s FSA dollars. If you already have an FSA but haven’t used up all your dollars, don’t rush to buy extra pairs of bifocals just yet. Many plans have extended the allowable time frame to incur expenses by two-and-a-half months — so no more scrambling to spend cash you’ve set aside. (Check with HR to be sure.)

  6. Brandon, you’re right about underpayment penalties being a big gotcha.

    I’ve been doing “self-withholding” for my self-employment income. Basically, I’m segregating that money into a separate high yield savings account and then paying out just enough in quarterly payment to avoid any penalties. If you don’t do this (estimated quarterly payments), you could be in for a nasty surprise at the end of the year.

  7. Anonymous

    “We are finishing off the contributions to our Roth accounts (the first time we have been able to do this) and are now just looking to cut our tax burden. It has been amazing how much interest we have earned by not having our income taxes withheld. We calculate our income tax and then put it into a hight interest savings account. We then make interest all year long on this money.”

    Have you done this before? If you aren’t paying at least quarterly estimated taxes, you very well may owe a penalty (

    Another site said this amounted to approxmiately 7% which I am sure is more than the interest you have been getting.

    Of course, you probably know all this already and have fulfilled estimated taxes or one of the exceptions. If not, I feel sorry for you 🙁

  8. JB: Good question… If you are doing a deductible IRA, then you will of course need to make the contributions before filing in order to take the deduction. If you file first, then make the contribution, I think you’d need to file an amended return to get the deduction.

    In the case of something like a Roth IRA, you don’t actually file any information regading your contribution with your tax return. Thus, while I think that the IRS technically wants the contributions made before you file, you could conceivably contribute for 2007 after you file your taxes, but before April 15th. In reality, your brokerage has no way of knowing whether or not you’ve already filed, so they should be willing to code it as 2007 as long as you do so before April 15th.

    Of course, this sets up a scenario in which you could potentially file your taxes, get a refund, and then use that money to fund your Roth before the tax deadline (as long as you get your return filed early enough). I’m not recommending this… Just pointing out that it might work.

  9. Anonymous

    Nickel – thanks! Maybe you can answer one more question… if IRA deadline is the tax deadline… what if I file my taxes in January? Can I contribute to my 2008 Roth IRA in February? How does that all work?

  10. The IRA deadline is the tax deadline. Since 401(k) contributions are typically withheld from your paycheck, I would assume that these have to be made by the date of your last check for 2007.

    That’s the case with my 403(b) and 457(b) plans — I don’t have a 401(k), but these fill the same role.

  11. Anonymous

    We are finishing off the contributions to our Roth accounts (the first time we have been able to do this) and are now just looking to cut our tax burden. It has been amazing how much interest we have earned by not having our income taxes withheld. We calculate our income tax and then put it into a hight interest savings account. We then make interest all year long on this money.

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