Year-end financial to-do list

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    Year-end financial to-do list

    The end of the year can be a whirlwind. But the actions you take these last few months can have a huge impact on your tax bill for next April and your long-term financial health.

    By taking proactive steps now, you can ensure that your financial life is organized and prepared for success as you head into the new year.

    Wondering which items are most important for your year-end financial to-do list? Below are nine cash movements you need to make before the new year to increase your bottom line.

    Year-end financial to-do list

    1. Adjust pay slips to match your 401 (k)
    2. Check beneficiaries
    3. Spend it when you have it!
    4. Sign up for a health plan
    5. Check your credit report
    6. Plan to donate to charity
    7. Start tracking business expenses
    8. Make an estimated tax payment
    9. Performing Backdoor Roth Conversions
    Do you have extra time? Use it to improve your finances

    1. Adjust pay slips to match your 401 (k)

    Most 401 (k) plans require employees to make their retirement contributions by December 31st. This year, you can deposit up to $ 19,500 (plus $ 6,500 in catch-up contributions for those over the age of 50).

    If you can handle a small reduction in your paycheck, consider increasing the contribution to your 401 (k) plan. Even a premium increase of 1-2% can lead to long-term benefits.

    Some companies give out year-end bonuses. If you want to receive one, be sure to reserve a portion for your 401 (k). This can help you increase your savings rate without delving into your regular cash flow.

    Related: Best Low-Cost 401 (k) Provider for Small Business

    2. Check beneficiaries

    As long as you are logging into your 401 (k) account, verify the beneficiary on the account. This is especially important if you got married or divorced in the past year. But putting on their year-end financial to-do list is an important task for anyone.

    A few years ago I went through my accounts to check the beneficiaries. During the process, I discovered that my mother was still listed as a beneficiary on a small account, despite having been married for a decade.

    3. Spend it when you have it!

    Over the past year, many companies have set up welfare accounts or allowances to help their employees meet some of the costs of working from home. These accounts can expire at the end of the year, so spend that money when it becomes available to you. Also, make sure you request a refund immediately to make sure you get this benefit.

    In addition to these new accounts, many employees have access to flexible spending accounts.
    Flexible Spending Accounts (FSAs) are accounts that don’t carry over from year to year. Employers can offer Health FSA, Adoption FSA, and Nursing FSA. Typically, employees with an FSA have to spend money by the end of the calendar year. They also have to apply for a refund shortly after the end of the year.

    If you have access to any of these accounts, spend the money this year and submit the receipts ASAP for a refund. Remember, this notice applies to Flex Spending accounts only. You can save year after year with health savings accounts.

    Related: Learn the differences between FSAs and HSAs

    4. Sign up for a health plan

    Most people will need to enroll on a health plan sometime between October and November this year. If your employer offers health insurance, consider the options. If possible, find out with your spouse which employer offers the best insurance at the lowest prices. Don’t forget to register your children too.

    Open registration for Healthcare.gov begins November 1st and runs through December 15th. This is the ideal time to get health insurance if you need to buy one on the stock exchange. Many people who do not have occupational health insurance can qualify for subsidized health insurance when buying on the stock exchanges.

    Related: Best health insurance options for the self-employed

    5. Check your credit report

    Every year you are entitled to a free credit report from any of the three major credit reporting agencies. That makes it a great task to add to your year-end financial to-do list.

    Credit reports show every inquiry and every outstanding claim. Reviewing a report is especially important if you have overdue debts that have been sold to other creditors.

    You can easily download your report from AnnualCreditReport.com or use a free service like CreditKarma.com to get your free report and insights to help you understand the report.

    Related: Best credit monitoring services

    6. Plan to donate to charity

    In 2021, you can apply for an “over the line” deduction for charitable contributions up to $ 300 ($ 600 for married couples). If you want to claim this allowance, you must do so by the end of the year.

    By listing your tax returns individually, you can donate up to 100% of your AGI in cash in 2021 (which is much higher than the 40-60% in previous years).

    People with larger fundraising goals can benefit from more advanced planning. Some donors choose to donate every few years so they can list their tax deductions. Meeting with a CPA by the end of the year can help donors determine the best time to donate.

    7. Start tracking business expenses

    It’s not quite tax time, but you can increase corporate taxes by starting to track your business expenses and categorizing past expenses. If you can find an app like Keeper Tax, Everlance, or Hurdlr, you can track and categorize your business expenses. All of these apps have downloadable reports that make tax filing easier.

    8. Make an estimated tax payment

    If you are self-employed (or a part-time worker), you likely owe tax money to the IRS. To avoid a heavy tax burden, you can make a quarterly estimated tax payment. Even a one-off payment can help alleviate some of the financial burdens associated with paying taxes for a year in April.

    This advice comes from my first side hustle experience as a working adult. In my first year of rush, I made over $ 10,000 playing various gigs. I have not paid any estimated taxes and have not adjusted my withholding taxes on my W-2 job.

    The result was a $ 2,500 tax bill that had taken a month and a half to cover. Don’t be like me Make at least one estimated payment before figuring out your full tax burden for the year.

    9. Performing Backdoor Roth Conversions

    A high income earner may not be eligible for a traditional Roth IRA contribution. But the Roth back door is a tax loophole that enables high earners to get money into a Roth account. Once the money is in the account, it is protected from future taxes.

    In general, the easiest way to do a Backdoor Roth conversion is when the calendar year is the same as the tax year. So add this to your year-end financial to-do list and try to complete it before December 31st.

    Do you have extra time? Use it to improve your finances

    When you have a few quiet days to reflect and plan at the end of the year, there are some exercises that can help. First, check your numbers. Some of the most important numbers to understand are your creditworthiness, total debt, net worth, income, and expenses. You can also share these numbers with your partner to normalize conversations about money.

    Second, set a financial goall. It’s easy to get carried away with the start of a new year and overwhelm yourself with goals for a dozen good resolutions. But instead of a tedious load of goals, try starting with a financial goal for the year ahead. It will help you stay focused. And if you can make it early in the year, there is always a new goal to set yourself to work towards!

    In the end, Plan expenses for next year. If you hate certain methods of monthly budgeting, try a new one. Also try to map the main expenses that may arise over the next one to three years. Writing down these expenses along with the expected price tags can help you create savings plans to meet these costs without debt.

    The post-year financial to-do list first appeared on The College Investor.

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