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4 Things You Must Get Done This Month

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With Thanksgiving solidly behind us, the year is quickly coming to a close. Before you start thinking about how to make 2010 your best investing year ever, though, make sure you don't miss out on some year-end opportunities to get your finances into shape for the New Year.

1. Get a clue with your taxes
If you thought that you didn't have to think about your taxes until April, think again. Although you have lots of time before you have to file your returns, you lose most of your chances to reduce your tax bill once the apple drops.

In particular, look out for the following:

  • Take your losses. Whether you have gains on other stocks or just want to take losses against your other income, you'll want to harvest your tax losses by the 31st. You can use any capital losses on stocks you sell to offset all your gain on sold stocks, plus you can use up to $3,000 more to reduce your taxable income.
  • Max out your deductions and credits. You can cash in with a number of provisions, from donating to charity and buying a home for the first time to making your home more energy-efficient and prepaying state income and real estate taxes. But you've got to write your checks before year's end or you'll lose your chance. Also, before you get excited about deductions, make sure the AMT won't wipe out your potential tax savings.

By paying attention to your taxes now, you'll have a lot more success cutting your tax bill.

2. Get right with your retirement
It's a resolution that many people made back in January: Save more for retirement. Yet between the financial crisis, the recession, and skyrocketing unemployment, you might not have followed through on your savings plans quite as thoroughly as you had expected.

If you do have the financial means to get savings into your retirement plan, however, now's the time to do it. For instance, this year, anyone can save as much as $16,500 in a 401(k) plan at work, and those who are 50 or older can stash away as much as $22,000. On Dec. 31, though, that opportunity goes away -- and while you'll have another chance in 2010 to set aside a similar amount, missing out on a year's worth of contributions can make a big difference to your retirement.

Moreover, if you don't contribute now, you might be missing out on free money. Although many companies cut back on their 401(k) matching contributions over the past couple of years, several, including American Express (NYSE: AXP  ) , Motorola (NYSE: MOT  ) , and JPMorgan Chase (NYSE: JPM  ) , have announced plans to reinstate matching in some form. You can't get a match, though, if you don't contribute yourself.

One final thing: If you're wondering whether to contribute to a 401(k) or your IRA, keep in mind that the deadline on IRA contributions is April 15. So if you're planning to contribute to both, you have some extra time before the IRA deadline to add money -- focus on your 401(k) right now.

3. Spend your flex money
Flexible spending accounts let you set aside pre-tax money to spend on medical bills and related expenses. Yet while many flex plans now let you spend money until March 15, some companies still retain the old year-end deadline. Check with your employer and make sure you use that money before you lose it.

4. Start investing right
A lot of people have taken a long vacation from dealing with their portfolios in the aftermath of the financial crisis. Now's the time to take the reins again and get back in control of your finances.

What exactly should you do? Well, rebalancing your portfolio in December can make a lot of sense, especially in combination with managing your taxable gains and losses. Here's an example: If soaring financials like Bank of America (NYSE: BAC  ) and Wells Fargo (NYSE: WFC  ) have increased the risk level of your portfolio, for instance, consider diversifying into blue chips in other sectors such as PepsiCo (NYSE: PEP  ) and Johnson & Johnson (NYSE: JNJ  ) .

Moreover, ensuring your portfolio is properly diversified could help you enhance returns with lower risk. That means making sure you have some international stocks as well as investments in companies of various sizes and sectors, as well as money in other assets like bonds, real estate, and commodities. That way, you won't have all your eggs in one basket if the stock market starts heading down again.

Make a list
December is a busy enough month without adding a long list of financial to-dos. But if you follow these simple steps, they'll pay off for years to come.

Be careful about the stocks you get rid of. Joe Magyer explains how he lost a fortune by selling this stock.

Fool contributor Dan Caplinger has a holiday to-do list longer than the Great Wall of China. He doesn't own shares of the companies or funds mentioned in this article. American Express is a Motley Fool Inside Value recommendation. Johnson & Johnson and PepsiCo are Motley Fool Income Investor selections. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy recently decided not to produce a pinup calendar with revealing photos of your favorite Fool contributors. Consider yourself lucky.


Read/Post Comments (6) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 01, 2009, at 12:47 PM, jwm46 wrote:

    One tax thing I also do by EOY is to make sure that with interest, dividends and side jobs where no withholding was taken out I have paid in enough estimated tax so that I will not hit the penalty for under-withholding.

  • Report this Comment On December 01, 2009, at 9:28 PM, PlainJane41 wrote:

    I am retired and facing a scary future. Thanks to an inheritance, things are looking a little brighter. I've signed up for MDP, which hopefully will help more. Now I'd like to maximize both of these things with a Roth IRA, but I'm afraid inherited money can't be used for a Roth, even though both my father and his estate paid taxes on it. Can somebody give me a definitive answer as to whether this money would be eligible? If it is applicable to the requirements for a Roth, I am 68 and surviving on SS.

  • Report this Comment On December 02, 2009, at 10:33 AM, 8Lives wrote:

    That money sure can be used in a Roth! Do it!

  • Report this Comment On December 02, 2009, at 11:06 AM, catoismymotor wrote:

    Dan,

    Thanks for the reminder. I'm currently getting my ducks in a row before the end of the year. And what a year!

    PlaneJane41,

    Hang in there. Keep fighting the good fight. We're pulling for you. Keep checking back to this story. Someone might be able to shed more light on your question.

    Cato

  • Report this Comment On December 04, 2009, at 1:13 PM, rwk2008 wrote:

    Re Investing in a Roth - it does not matter where the money comes from. What matters is whether you are eligible to contribute. You must have taxable compensation (wages, tips, fees, commissions, etc.) to contribute at all.

    If you are single and your modified ajusted gross income (AGI from 1040 with a few modifications) is under 105,000, you can contribute the limit. Over 120,000, none is allowed, between is scaled. The limit is 5000 or taxable compensation, whichever is less if you are under 50, otherwise 6000. For married, the numbers are 166,000 and 176,000

  • Report this Comment On December 04, 2009, at 1:35 PM, PlainJane41 wrote:

    Thanks, rwk 2008, that's what I was afraid of, but between taking care of my mother, who has Altzheimer's, and my husband, who is terminally ill, there's no time for an "earned income." Maybe next year...

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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