I know that we’re all still in the holiday spirit, but by the time the week goes by, we’ll be making New Year’s Eve plans and forgetting about our finances. Winning with money is all about being prepared and being one step ahead of the financial game. Again, I don’t want to ruin the holidays by bringing up taxes, but there are a few things you can do from the couch, in pajamas, while sipping on some eggnog that will help lower your tax bill in the 2011 tax season. Here are 5 financial moves you can easily make that will save you money this year.
1. Max Out 401k Contributions
For the 401k retirement plan, the maximum contribution is $16,500. People over 50-years-old can add an extra $5,000 to that number. The more you can throw at your 401k, the more you will reduce your taxable income for 2010. Talk to your HR rep to see if you can put your entire final paycheck in your 401k.
2. Max Out Roth IRA Contributions
This year, the maximum contribution for a Roth IRA for those 49 and under is $5,000; the maximum for those 50 and over is $6,000. Throw as big of a lump sum in there before the end of the year as you can. With the Roth IRA, you have some more time to contribute and have it count for 2010. Typically, the last day is April 15th, but I recommend putting a lump sum in after the holidays, once the dust settles from all of the holiday spending.
3. Cut Your Losses
If you have stocks in your portfolio that have suffered losses this year, start selling those stocks. They’ll likely offset the taxes that you’ll owe on your taxable investments where you had gains. You’ll need to sell before December 31st, but don’t sell hastily. Try to meet with your stock adviser next week, before the New Year, and figure out which stocks were truly duds and which ones are worth keeping.
4. Make Charitable Contributions
Get your charitable contributions in before December 31st. 100% of a donation is tax deductible if you contribute to a qualified non-profit organization. Giving to your church, giving back to a family in need over Christmas, and/or giving away an old car or furniture are all great ways to help someone out during the holidays and reduce your 2010 tax bill.
5. Start Gathering Your Documents for Taxes Now
You won’t have your main tax documents until early the following year, but if you have nothing to do one day, consider saving yourself some future work. Why not start gathering your tax documents now? You will have less hassle in February and March, when you’re working on your returns, and you be thankful you did the work ahead of time.
Cheers to a successful close of 2010, and wishes for your financial success in the New Year.
(photo credit: Mr Moss)