As the year draws to a close, it's time to make sure we've done what we can to lower our tax bill! Here are some of the standard things we look at around this time each year:
Max Out Roth IRA
While this won't lower your tax bill, it's a one-shot thing - you can only contribute a certain amount each year and if you miss it for a year, your chance is gone. You have until you file your taxes for the year to make the contribution, but earlier is always better! Here's more information about Roth IRAs, this year's limit, and who is eligible.
Your 401(k) contributions lower your tax bill now (deferring it until you withdraw the money at retirement) so it's a good idea to pay close attention to how it affects your overall situation. Of course, you should contribute at least to your employer's match, if one is offered - otherwise you are ignoring free money! If you got a raise this year, can you increase your contributions? A 1-3% contribution increase makes almost no difference in your regular paycheck but can pay off a lot in the long run.
In addition to checking your contribution level, you should also check to see how your 401(k) is allocated. Smart Money has a great rundown of how to evaluate whether your 401(k) needs to be rebalanced.
Did you know you can deduct medical spending that are more than 7.5% of your adjusted gross income? It's true. This is something that probably won't affect most people during most years, but if you have a high-deductible health plan and meet the deductible, or have a lot of dental work done, or have some sort of medical emergency, you might spend enough to be able to deduct the overage from your taxes. In addition to things like hospital bills, you can also deduct mileage and meals, which comes in really handy when you have a major medical event in your life like we did this year.
Monetary donations along with donations of goods and services might be deductible from your taxes. This requires you to keep some records all year long, but it can be worth it!
These last two are not tax-specific, but they tie in nicely to taking a look at your overall financial picture at this time of year.
Double check your benefits elections
Many companies do their annual open enrollment period in the last few months of the year. This is a really good opportunity to take a look at your health, life and disability insurance and make sure the plans you're on are still the most cost-effective and relevant to your life. And if you find that your company benefits aren't meeting all of your needs, I recommend private insurance - and I recommend Insurance for Dummies to walk you through the process. (No affiliation, I just really like the book!)
Take a look at your debt situation
For one thing, it might stop you from overspending during the holiday season! Perhaps you can take a new look at your finances and start formulating a plan to put into place as a New Year's Resolution to pay down your debt and gain some financial freedom in your life.
Do you do a financial or tax check-up each fall? Anything I missed off of my list?