The best way to kick off a new year is by tying up any loose ends from the previous year, which is especially true for your finances.
There are a few financial wrap-up tasks you can do at the end of the year to save you money (and headaches) in the year ahead:
Max Out Retirement Accounts
Any contributions you make to retirement accounts like 401(k) plans and traditional IRA accounts are tax deductible, so it’s a good idea to max them out within this calendar year to cut down on taxable income. This is the perfect place to put those year-end bonuses as well, because that’s going to save on taxable income.
Your tax savings are an instant reward, but there is also obviously a long-term benefit to this. Adding more now means you will gain more later through interest and appreciation. Getting into the habit of maxing out these accounts during every yearly financial wrap-up will yield serious results over the years.
If you’re interested in a Roth IRA account, you’re not going to get those same tax benefits because they aren’t tax-deductible. They are tax free, however, so putting as much money in as you can will still pay off in the long run.
Cut Down on Taxable Income
Maxing out your retirement accounts is one smart way to reduce your taxable income, but there are other great options available to you using tax deductions:
Charitable giving: You can deduct contributions you have given to charities that fit the tax code, such as nonprofits, religious groups, not-for-profit schools and public parks. But if you plan to go this route, you need to make sure you have proof of your donation, like a receipt or canceled check.
Income tax: If you live in a state that collects local or state income taxes, don’t overlook this potential deduction. You can deduct that money against your taxable federal income. Similarly, some states don’t collect an income tax but do charge sales taxes, and other states charge both. In all cases, you have the chance to lower your tax bill by counting that amount against your income.
Business expenses: If you own a small business, there are many small expenses that can save you big on your tax bill. These could include home office expenses, business equipment, software and mileage.
Review Estate Plans
It’s important to review your estate plans once a year, especially if you’ve had big life changes like the birth of a child, a marriage or a divorce. You should also double check all of the beneficiary information on your estate plan documents are still accurate.
Prepare for Next Year
Completing your financial wrap-up for this year isn’t complete without considering next year. What do you want to change? Did you save enough, keep your documents organized and achieve your goals this year? If you didn’t, how can you make that happen next year? Reviewing how the current year went is a valuable tool to set yourself up for success in 2017. Instead of vague ideas of what you would like to accomplish next year, come up with a month-by-month game plan to stay on track. Those milestones can be fluid as your life changes over the year, but they give you a strong jumping off point to be more successful.