What to Do Before 2014 Ends: A Financial Cheat Sheet

tax planning

The holidays are a busy time of year — and expensive too. That's why it makes sense to take a break from the hubbub and look for some last-minute ways you can save money on your taxes.

Here are the top moves to make:

1. Stuff money into retirement accounts. It may be too late to max out your 401(k), but you can put up to $5,500 into an IRA or Roth IRA, even if you have a workplace plan. (The limit is $6,500 if you're 50 or older.) Then set yourself up for more retirement savings next year by asking your human resources department to boost your 401(k) contribution. Even 1 percent more can make a difference. No workplace plan? Set up automatic transfers to that IRA or Roth.

2. Use up your FSA. Flexible spending accounts allow you to pay medical or child care costs with pretax money, but you'll typically lose any unspent cash. (Some companies allow people to roll over up to $500 from one year to the next; call your HR department to find out if yours is one of them.)

You can no longer use FSA money to pay for over-the-counter medicine, but prescriptions, eyeglasses, chiropractic visits, dental treatments, and other medical expenses are all eligible for reimbursement.

3. Make charitable contributions. If you itemize your deductions, the money you donate can win you a nice tax break. If you don't have cash, you can donate stuff such as clothing, household goods, electronics, books, and DVDs as long as the items are in good condition. Or donate one of your stock-market winners. You won't have to pay taxes on the gain and you'll be able to deduct its higher value (rather than what you paid).

4. Decide: Accelerate or defer? You can often lower your tax bill by delaying income and accelerating deductions. Asking your boss to delay your bonus until January is a way of delaying income. To accelerate deductions, you could pay January's mortgage payment in December or prepay next year's property taxes.

This also can be a good technique if you don't have quite enough deductions to itemize and prepaying these expenses would allow you to do so. This kind of tax planning can be tricky if you expect big changes in your income next year, though, so consider talking to a tax pro.

5. Plan to file early. Tax refund theft is a huge deal: The IRS paid more than $5 billion last year to identity thieves posing as real taxpayers. The victims often had to wait months to get their money. The best defense is to file early, and file electronically. Software such as TurboTax or TaxAct can get you help you get started. Creating a preliminary return before the end of the year also may help you spot problems (such as under-withholding) and opportunities (like ways to trim your bill) while there's still time to act.

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Tagged in: Taxes, Liz Weston
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