The end is near! The end of the year that is … And with that, December is a good time to get you finances in order and get ready to settle with the tax man. Here are some tips to get yourself ready for another year:
Set Your Budget for Next Year: Remember, a budget is simple:
• Money In – Money Out > 0 = Success.
The best way to do this is to create a table with 12 columns; one for each month. Start by listing your income towards the top. Then list all your bills and expenses. This strategy is usually a little more effective than just doing one generic monthly budget because it captures expenses that don’t occur every month or are seasonal (like Christmas expenses). This also lets you see how you’re doing throughout the entire year and if you will run into any problem areas.
Contribute: Before you file your income taxes, you’ll want to make sure you’ve maxed out your tax-deferred investments. This would include:
• 529 College Savings Plans
Donate: Donations count as a tax write-off. December is your last opportunity to get in any last minute generosity or charitable contributions.
Sell Your Losers: You can offset your income with losses from your losing investments (called capital losses). If you think there is little hope, sell off your non-performers.
Hold on to Your Investments: Since investments held more than one year (called long-term capital gains) get better tax treatment than ones held for less than one year (called short-term capital gains), try to ride out selling them if they are making you money.
List Your Expenses: If you paid work expenses, make sure you have the receipts and are ready to deduct them for your income tax return. Teachers: Don’t forget your educator expense credit!
Set Your Goals for Next Year: Perhaps the most important action to take is to decide what it is that you want to accomplish next year. Consider the following questions:
• Do you have debt that you should be paying off faster?
• Do you have any major purchases upcoming that you should be saving for?
• Can you save more for your 401(k)
• Can you stash more into your IRA each month?
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