Monday, January 21

It's Time to Tap Year-End Money-Saving and Tax-Saving Tips

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When December arrives, thoughts turn not just to the holidays but to steps you can take to maximize year-end savings, particularly on the year’s taxes. As you enjoy the season’s festivities, take a moment to consider the following potential ways to save.

Tax-related Savings

Maximize Your Contributions to Tax-Advantaged Plans

Make sure that you make the maximum contributions to any tax-advantaged savings plans that you have established, such as conventional Individual Retirement Account (IRA) [not a Roth IRA], employer-sponsored 401K, Keogh Retirement Plan, or Education Savings Plan. Consider establishing any of these plans appropriate for you if you don’t have them.

Give to Charities You Support

If you itemize deductions on your income tax return (rather than take the standard deduction), then gifts to qualified charities are tax-deductible. Typical qualified charities include churches, synagogues and other faith communities; educational institutions, arts organizations and other not-for-profit organizations that have 501(c)(3) or other appropriate status under the tax code. Check out charities by using tools such as guidestar.org and checking out claims on the organization’s website. Read more about wise charitable giving. Check out the IRS fact sheet on charitable deductions.

Bunch Deductions Over Two Years As Appropriate to Maximize Savings

The IRS allows itemized deductions of some expenses on Schedule A only after they exceed a certain percentage of your Adjusted Gross Income (AGI). For example, qualified medical expenses must exceed 7.5% of AGI and miscellaneous deductions (such as job hunting expenses, unreimbursed employee business expenses, and tax preparation expenses) must exceed 2% of AGI. It’s hard for many people with potential deductions to reach these amounts in a single year. However, the IRS allows individuals to "bunch" the deductions over two years. For example, let’s say that you don’t have enough miscellaneous deductions in 2015 to exceed the 2% or perhaps you exceed it by just a few dollars. You can hold these deductions until you file your 2016 taxes, then bunch 2015 and 2016 expenses to get a larger deduction. Such a strategy may enable you to maximize savings every other year. To read more about miscellaneous deductions, see IRS Publication 529.

Prepay Some 2017 Deductible Expenses in 2016

If you estimate that your income and tax liability will be larger in 2016 than 2017 then you can maximize some deductions by prepaying certain deductible expenses in December 2016. For example, you could prepay your January 1 mortgage payment in December 2016 to move that interest deduction into this year. If you have a part-time business or are self-employed (reported on Schedule C), make deductible equipment or supplies purchases in 2016 and renew subscriptions and memberships that qualify as deductible expenses in December. It’s important to remember, however, that if you don’t repeat this strategy in 2017 you would have only 11 months of deductible mortgage interest in our example and fewer deductible expenses for your Schedule C business.

Other Year-End Savings

Consider a Home Energy Audit

Winter has arrived in most of the country and with it potentially high utility bills. It’s not too late to save by winterizing your home and taking energy saving steps like turning the thermostat down 2 or 3 degrees. Caulking drafty windows, putting up storm windows or using window insulator kits, and adding door sweeps and weather-stripping to exterior doors can increase comfort and cut heating costs. Having your furnace serviced annually and changing the filter regularly can assure efficient running. If you want to have your home evaluated for potential energy savings, many utility companies provide a free energy audit.

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In the Market for a New Vehicle? You May Save Big by Shopping the Right Way

At year’s end many dealerships typically have year-end dealer incentives or sales quotas to meet. Some may still have 2015 models that they’d like to sell as quickly as possible. Although consumers will not actually see these dealer incentives—in spite of the constant advertising that suggests you will—you can actually save big on buying a new car or truck now if you shop the right way. The right way means that you do your homework to find out the real values of all the parts of the vehicle buying transaction (cost of vehicle to dealer, wholesale value of your trade, and cost of financing) and the right way to negotiate before you go shopping. We show you all the steps and techniques in the FoolProof Car Buying Guide.

Spend Any Money Left in Your Flexible Savings Accounts

If you have a Flexible Savings Account (FSA) for health care costs or for caregiving costs, make sure that you spend the remaining dollars in those accounts before the end of the year so that you don’t lose them. You may be able to roll over up to $500 but you'll need to check if your plan offers that option.

Make a Budget for 2016

One of the best ways to realize long-term savings over the next year is to make a budget now. Planning ahead can help you maximize savings (including tax advantaged savings), plan to get the most for your shopping dollars, and anticipate any big expenditures. All these strategies help you get more “bang for your buck.” Read more about budgeting and saving.

Saving Now Pays Off

Taking a little time from holiday activities to put some of these tips for saving into action has at least two pay offs. First, you save money now—and when it comes time to file your taxes. Second, it gives you a positive start to the new year—particularly if you take our recommendation to make your 2016 budget now. A little planning now will help you save in 2016!