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.
