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Year-End Money "Must-Dos"

Scrambling to take care of your year-end financial housekeeping before the last refrain of "Auld Lang Syne"? Then let's get right to business so you have plenty of time to pick a show-stopping New Year's Eve ensemble.

Here's a rundown of top-priority tax tasks -- the stuff that absolutely must be done before popping the bubbly -- plus pointers for procrastinators on what can be put off until after the confetti settles.

1. Slash next year's out-of-pocket health-care/dependent-care expenses
During open benefits enrollment, you not only have the opportunity to tweak your health-care coverage, but also to secure savings of 25% or more on all of those out-of-pocket medical and dependent-care expenses.

This cost-cutting technique is possible via flexible spending accounts (FSAs). FSAs come in two flavors -- medical and dependent-care. In a nutshell, FSAs are funded by you with pre-tax dollars taken out of each paycheck. When you incur expenses not covered by your health insurance plan (or write a check for dependent care), you submit a receipt and get paid back with the money you set aside. See your plan pamphlet for eligible expenses. Examples of reimbursable medical expenses include doctor visit co-pays and deductibles, prescription co-pays, over-the-counter meds, orthodontics, Lasik eye surgery, contact lenses, birth control, psychotherapy, and acupuncture. Eligible dependent-care costs include what you pay for nannies, au pairs, and nursery schools.

Must do: Enroll in your employer's FSA program. Not enrolled in an FSA? Dude! Sign up now. If you contributed $1,200 (about the national average) to a medical or dependent-care FSA and are in the 25% tax bracket, you'll save about $420 annually (including federal and Social Security taxes paid), or $35 a month. Stash $3,100 -- last year's average contribution -- in a dependent-care account, and you're looking at more than $1,000 in annual tax savings, or $83 a month. To nail the contribution amount, use the worksheet from your plan or fiddle with the FSA calculator at and the Health Expense Calculator at

And for more advice on maxing out dependent care perks, find out how you can save big with dependent care benefits. Following our advice on signing up for the right health-care plan could add hundreds to your paycheck.

Can wait: Using up last year's FSA dollars. If you already have an FSA but haven't used up all your dollars, don't rush to buy extra pairs of bifocals just yet. Many plans have extended the allowable time frame to incur expenses by two-and-a-half months -- so you may not have to scramble to spend the cash you've already set aside. (Check with HR to be sure.) And for help managing all those receipts, ask your vendor for a hand. If you buy your prescriptions at one place, ask for an annual rundown of what you've spent. Some vendors, including 1-800 Contacts (Nasdaq: CTAC  ) , (Nasdaq: DSCM  ) , and Walgreen (NYSE: WAG  ) , have tools on their websites that help you track qualifying purchases.

2. Minimize next April's tax tab
Time and money are short around the holidays. But saving strategically to minimize the April tax hit is the best gift you can give yourself. Right now, see if you're on schedule to max out your employer-sponsored retirement plan. Contribution limits this year are $15,500; those aged 50 and older may be eligible to contribute $20,500.

Must do: Bump up your final work retirement plan contributions. Since pay periods are dwindling, opportunities for maxing out your 401(k) (or other employer-sponsored plan) are limited. That's not an excuse, by the way. Find out if your plan allows you to defer a heftier chunk -- some allow up to 100% of your compensation -- of your final 2007 paychecks. It may be painful to pass up the pay, but giving up the compounding tax-deferred income is worse. Plus, socking away money in a traditional retirement plan reduces your taxable income. If you're in the 25% tax bracket, you'll shave $250 off your federal tax bill for every $1,000 you contribute to your 401(k).

Can wait: Fully funding your IRA. If money's tight, allocate any extra dollars to your company 401(k) (or other employer retirement plan) instead of your IRA. You have until Apr. 15, 2008, to fully fund your IRA; but, again, the deadline for work retirement plan contributions is Dec. 31, 2007.

3. Prioritize your final paychecks
Once you have the year's final pay stub in hand, don't just gawk at the size of Uncle Sam's take. Strategize a few last-minute tax-time maneuvers.

Must do: Put off collecting income, if you can. It's hard to postpone pay, particularly during the spendy holiday stretch. But deferring some compensation -- such as a bonus, or, if you're retired, a retirement account withdrawal -- for one more month may be a better long-term financial move, particularly if you're going to be subject to the alternative minimum tax, or AMT. Also note how your remaining paydays might affect your eligibility to make deductible IRA contributions, both this year and next.

Can wait: Withholding. More than 70% of Americans overpay their taxes each year. While a refund is nice, it's even nicer to earn interest on your money instead of giving the government a free loan. Check your withholdings with the Form W-4 Assistant at You can change your withholdings at any time of the year, so no deadline is looming. Still, you may be inspired to put this on your "must do" list when you see how much you're passing up by letting Uncle Sam have a free loan: The average refund in 2006 was about $2,400. Had that money been sitting in a high-yield savings account earning 4% for the past year, you'd have earned $98 in interest. Invested in the S&P, you'd be bragging about your 15.59% return, or the $379 in interest you have on New Year's Eve.

4. Pretty up your portfolio
It's been an up-and-down year on Wall Street. The IRS kindly offers a little salve for those who have taken a hit, allowing investors to reduce capital gains taxes owed on investments held and sold for a profit in regular, taxable accounts by offsetting the tab with capital losses from stocks that have lost value. So if you've gotten hit by stocks like Circuit City (NYSE: CC  ) , Office Depot (NYSE: ODP  ) , or Chico's FAS (NYSE: CHS  ) , getting a tax break is at least a little bit of good news.

How's it done? Sell floundering investments and either put the money in another (but not identical) investment or wait 31 days and buy the investment back (to avoid breaking the IRS's "wash sale" rules).

Must do: Sell your losers. Tax-loss selling must be completed by Dec. 31. But don't do it willy nilly: If you bought stock at multiple cost bases, sell the most expensive shares first. If you don't have capital gains in your taxable accounts to offset the losses, but have investments worth less than you paid, you can use capital losses to reduce your ordinary income by up to $3,000 a year. If you're in the 25% tax bracket, doing so will reduce your taxes by $750.

Can wait: Dumping every loser from your portfolio. Got more stinker stocks than you can use this year? The IRS allows you to carry over your losses for use in future years. Also, you may want to live with your losers a while longer, since a logjam of investors selling off shares may drive prices down even more.

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