5 Year-End Financial Things To Do Before 2016

by Connie Mei · 6 comments

to do listThe turkeys have been eaten and the trees are starting to go up. Christmas is right around the corner. While we’re all looking forward to one of the most magical holidays of the year, that also means that the new year is right around of the corner. Pretty soon, we’ll be making our new year’s resolutions.

As you think about your goals for the coming year, it’s also important to reflect back on the year past and wrap any any loose ends, especially when it comes to your finances. Here is a checklist of 5 financial things you should do before new year’s day:

Review Your Yearly Budget

The end of the year is the perfect time to review your yearly budget. Are you on-track? Did you overspend? Did you have to dip into your emergency fund? While it may be too late to make a change now, reviewing your spending will help you make your new budget in the coming year. If you’re over, you might have to cut back the first few months of the new year.

Max Out Your Retirement Contributions

You should take a look at your retirement accounts immediately. For an individual retirement account (IRA), you have until you file your tax return in April 2016 to make a 2015 contribution. However, for a 401k, you have to make your contribution in the same calendar year for it to be deductible. In 2015, the maximum contribution for a IRA is $5,500 and $17,500 for a 401k.

Donate to a Charity

Many people choose to donate to charity during the holiday season. This is not only a way to give back to the community but also a deduction on your 2015 tax return. You must make your charitable contributions by December 31st and they must be itemized if you are claiming these contributions as a tax deduction.

David’s Note: Consider donating appreciated stocks to a donor advised fund and then request the fund to liquidate the stocks and send the amount to your charity. This way, you get to deduct the amount of the stock in the year it was sent to the donor advised fund without you paying capital gains taxes and the charity gets the money you were going to gift anyway.

Spend What’s Left in Your FSA

The policy on funds left in Flexible Spending Accounts (FSAs) have changed over the years. In the past, you had to spend everything before the year end. Otherwise, you would lose it. Now, employers can offer to rollover up to $500 or offer a grace period. However, your employer must agree to it. Make sure you understand your company’s policy so that you don’t end up losing money you could’ve spent.

Prepare for 2016

Lastly, as the year ends, it’s never too early to start preparing for 2016. Gather financial documents you’ll need and make sure everything is up to date, especially if you’ve have a life change in 2015. Something as simple as making sure your address is updated can save you a lot of headaches later now.

What is one financial thing you are planning to do before the new year?

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  • Raj says:

    My only financial new year resolution is to increase my contribution towards investments by not less than 20%.. hope I will be able to catch up..

  • Jolee says:

    Don’t forget to contribute to a 529 plan for your kids, especially if you get a state tax deduction!

    • David Ning says:

      529 accounts can offer a good long term tax break since the earnings aren’t taxed as long as it’s used for qualified expenses.

      And don’t forget that you can theoretically front load a 529 with 5 years worth of gift limits.

  • freebird says:

    Don’t forget tax-loss harvesting. If you had a bad year like I did, you can take up to $3000 in losses to offset earned income. Just beware of the wash sale rule; IOW make sure you have no purchases of the same name within 30 days of any loss sale.

    On the flipside if you like the idea of shares as stocking stuffers, I think now is a good time to shop this year’s big losers. Tax loss selling and window-dressing are popular enough to create divergence (i.e. exaggerated price differential between gainers and losers) at year end. The idea is to buy losers now and let the January effect mean-revert this differential. I believe this works best on thinly traded small caps but you have to know what you’re doing in that corner.

    • David Ning says:

      Thanks for chiming in. Tax loss harvesting is definitely a beneficial move for those who have losses. Remember also that you can carryover losses to future years, so you don’t lose the tax breaks even if you have over $3,000 in losses.

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