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Ok, there are just a couple more days left in 2017. But before you put on your party hat to ring in the New Year, there’s still time to make some smart money moves before year end that will make 2018 awesome. Here are 12 of the best ideas in personal finance that will position you to for financial success.
Smart Money Moves Before Year End
In light of the new tax legislation that will take effect in 2018, these smart money moves before year end are even more important.
I’ve already completed several of these items to reduce my taxes. Which of these will be important in your life?
Disclaimer: I’m not a CPA or tax professional, so please consult your tax professional to determine if these suggestions are suitable for your personal situation.
1. Prepay Property Taxes
If you live in a high tax state like I do (California), you should consider pre-paying your property taxes because you’ll have a combined maximum deduction of $10,000 for state and local taxes (aka SALT) beginning in 2018.
I’m not only pre-paying the property taxes on my home, I’m also paying the taxes on my rental properties this year as well because next year’s tax brackets will be much lower.
2. Prepay January 1st Mortgage Payment
Fortunately, Congress was nice enough to allow current homeowners to retain the interest deduction on up to $1 million in mortgages. Starting in 2018, the cap is reduced from $1 million to $750,000.
Because the standard deduction for singles and married couples is almost doubling, many people will realize that the hassle of itemizing their deductions is no longer worth it in 2018. So, prepay your January 1st mortgage payment to pay that interest in December 2017 and claim it on your 2017 taxes.
3. Harvest stock market losses
Friday, December 29th is the last day of 2017 to make any smart money moves before year end because the Stock Market is closed on Saturday and Sunday.
The market has been on a tear since Trump was elected, with the Dow up over 25% this year. However, just because the stock market is at all-time highs, that doesn’t mean that there aren’t some losers in your portfolio.
If you have any stocks or mutual funds that have lost money since you bought them, consider selling them to write off the loss in 2017. You can either wait 30 days to buy the stock or mutual fund back or you can buy something similar right away to avoid the “wash sale rules” affecting your ability to claim the losses.
4. Spend your Flexible Spending Account Money
With rule changes several years ago, most Medical FSA accounts allow you carry over the unused portion and spend through March 31 of the following year, but not all do.
Submit your medical expenses now, consider pre-paying medical bills, or stock up on medicines that you know you’ll need in early 2018.
Flexible Spending Accounts are also available for transportation and child care, so don’t forget about them either.
5. Schedule an appointment with your Tax Preparer
Whether you use a CPA, an Enrolled Agent, or a knowledgeable friend or family member with a copy of Turbo Tax, schedule an appointment with them now before they get super busy with the start of the tax season. Use our referral link to buy from Amazon and you can get Turbo Tax delivered as soon as January 5, 2018!
If your tax person is really good, they’ll have already sent you a list of smart money moves to make before year end based on their experience with your personal situation.
6. Re-Evaluate Tax Withholding
With the tax brackets and rates getting adjusted in 2018, now is a good time to re-evaluate your tax withholding for Federal and State income taxes. My goal is to get as close to $0 refund as possible… I don’t want to owe the government anything, and I certainly don’t want to give them a 0% loan all year long!
7. Open IRA Accounts
You can open individual Traditional and Roth IRA accounts for 2017 up until April 2018. That being said, there’s no time like the present to start saving for your future! So, open an account today and start putting a little extra aside for yourself.
The maximum you can contribute for 2017 is $5,500 ($6,500 if you’re 50 or over). Be aware that Traditional IRAs contribution limits may be affected if you have a retirement plan at work and Roth IRAs contribution limits if you make over $118,000 (single or $186,000 married).
Once your account is established, track your new retirement account and all of your other bank, credit card, and investment accounts through my favorite tool – Personal Capital. It is completely free and one of the best ways to view all of your accounts, even if they happen to be with multiple banks and investment companies.
If you own a small business, you also have an option called the SEP-IRA which has higher contribution limits than the Traditional or Roth IRA. SEP-IRA contribution limits are $54,000 or 25% of total compensation, whichever is less.
8. Increase Retirement Contributions
Whether you contribute to your retirement at work, on your own, or both, give your future self a little gift and increase your contribution a little bit. Most people won’t notice an increase of 1% in their retirement contributions (aka going from 6% of salary to 7%).
Today is always the best time. But, if that’s not possible, time your increase in retirement contributions to your next wage increase. Because you never had that money before, you won’t miss it when you set aside a little extra for yourself.
9. Deduct Moving Expenses for a New Job
If you moved for a new job this year or are about to in 2018, pay those expenses in 2017 because this deduction is eliminated in 2018.
Smart money moves before year end like this are total no-brainers because it is the difference between getting a break on your taxes (2017) or nothing (2018).
10. Pay for Non-Reimbursed Job Expenses
Not everyone is lucky to have their work pay for expenses related to their job. Teachers are a glaring example because they often buy supplies for their classroom that aren’t funding by their school district. Similarly, if you attend training, workshops, or conferences related to your job, they may not be reimbursed either.
Pay for them now so you can deduct them in 2017 because this deduction is also going away in 2018.
Better yet, use my approach and use your airline miles and hotel points to reduce the cost of attending conferences. You may even be able to convince your boss to pay for the conference if you cover hotel and airfare. It will be our little secret that you used miles and points instead of cash.
11. Pay for Tax Preparation Fees
Here’s another takeaway hidden in the new tax laws. In years past, you could deduct the cost of preparing your taxes on your tax return. However, starting in 2018, you can no longer deduct these expenses.
I’m guessing that some smart CPAs and Enrolled Agents will market “free tax returns” when paying for a comprehensive tax planning session or other accounting service.
12. Pay Off or Refinance your Home Equity Loan
With the new tax laws, home equity loans and lines of credit are no longer tax deductible. Unlike mortgage loans, the tax deductibility of existing home equity loans and lines of credit is not grandfathered.
This means that, whether your home equity loan or line of credit is new or old, you will no longer be able to deduct the interest that you pay on your taxes.
With the tax deduction, for some people, that meant that the effective rate you were paying on the home equity interest was about half.
And, adding insult to injury, interest rates have already climbed 1.25% over the past 2 years and economists are predicting that the Federal Reserve will increase rates 3-4 more times in 2018!
If you have money setting aside, I suggest that you pay down your home equity loan as much as possible. Or consider refinancing your home to consolidate the home equity loan into your mortgage. Because mortgage rates have been rising, do the math to ensure that the new loan will be worth it when factoring in the fees of a refinance, the loss of a lower rate on your current first mortgage, and how quickly you could pay off the home equity loan if you didn’t refinance.
The Bald Thoughts
There is precious little time to make some of these 12 smart money moves before year end, but if you do, you can make 2017 a little bit brighter and put yourself on the path towards making 2018 awesome! Whether you can make giant leaps or only take small steps, every action you take towards improving your financial future is a positive move.
What smart money moves before year end are you taking? Did I miss any? Please share your strategies in the comments below.
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