Don't Blow Off These Four Year-End Money 'Must-Dos'

by Dayana Yochim

Procrastinators, rejoice! I’m not going to bombard you with an all-inclusive list of year-end financial housekeeping chores. Instead, I’m going to present the absolute must-dos — the four top-priority tax-related tasks that even world-class foot-draggers can’t put off. Legally, at least.

Once you get rolling, you may be motivated to seek extra credit — and a little more breathing room before next April. If you’re so inclined, I’ve also included some other tax-related chores that will eventually need your attention. No pressure. Just sayin’.

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 with flexible spending accounts. FSAs come in two flavors — medical and dependent-care. In a nutshell, you fund FSAs with pre-tax dollars taken out of every paycheck. When you incur expenses not covered by your health-insurance plan, or if you write a check for dependent care, then you submit a receipt and get paid back with the money you set aside. See your plan pamphlet for eligible expenses.

Your must-do: Sign up. Not enrolled in your employer’s FSA program? Dude! Do it 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. To nail the contribution amount, use the worksheet from your plan or fiddle with the Health Expense Calculator at

Blow-off-able (for now): Using up last year’s FSA dollars. If you already have an FSA but haven’t used up all your dollars, don’t rush off 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 your HR folks 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. Many drugstores can easily provide that information for you.

2. Minimize next April’s tax tab
Time and money are short around the holidays. But saving strategically to minimize your April tax hit is the best gift you can give yourself. Right now, see whether you’re on schedule to max out your employer-sponsored retirement plan. Contribution limits this year are $16,500; if you’re 50 or older, you may be eligible to contribute $22,000.

Your must-do: Bump up your retirement-plan contributions. Since the remaining numbers of pay periods before the deadline is dwindling, opportunities for maxing out your 401(k) or other employer-sponsored plan are limited. Find out whether your plan lets you defer a heftier chunk of your final 2009 paychecks — some allow up to 100% of your compensation. It may be painful to pass up the pay, but giving up the compounding tax-deferred income is worse. What’s more, 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).

Blow-off-able (for now): Fully funding your IRA. If money’s tight, allocate any extra dollars to your company’s retirement plan instead of to your IRA. You have until April 15, 2010, to fully fund your IRA; but, again, the deadline for work-retirement plan contributions is Dec. 31, 2009.

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.

Your 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. Also note how your remaining paydays might affect your eligibility to make deductible IRA contributions, both this year and next.

Blow-off-able (for now): Withholding. More than 70% of Americans overpay their taxes every year. Sure, a refund is nice, but 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 item on your “must do” list when you realize you’re letting Uncle Sam borrow money that you’d just get back anyway.

4. Pretty up your portfolio
Yeah, it’s been a lousy year on Wall Street, but the IRS kindly offers a little salve for those who have taken a hit. You can reduce the capital gains taxes you owe on any investments held and sold for a profit in regular, taxable accounts by offsetting the tab with capital losses from stocks that have declined in value. So if you’ve seen big losses, getting a tax break is at least a little bit of good news.

Your must-do: Sell your losers. Get rid of 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).Tax-loss selling must be completed by Dec. 31. But don’t do it willy-nilly: If you bought a 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 you still have investments worth less than what you paid for them, 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.

Blow-off-able (for now): Dumping every loser from your portfolio. Got more stinker stocks than you can shake a stick at? The IRS allows you to carry over your losses for use in future years. You also may want to live with your losers a while longer, since getting caught up in a logjam of investors who are also selling off their shares may drive prices down even more.