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10 Money Moves to Make before New Year’s

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By Claudia Buck

donation_sign_piggy_banks(MCT)-Amid the hectic holiday season, who but Scrooge wants to dwell on taxes, stock losses, IRAs and 401(k)s? But it might pay off to take a few moments, given that some financial deadlines are fast approaching. To give you enough time before Dec. 31 rolls around, we’ve gathered 10 year-end smart money moves.

1. Use up your FSA: If you’re one of the estimated 14 million Americans with a Flexible Savings Account through their employer, now’s the time to spend any money sitting in your account. Because it’s use-it-or-lose-it, the tax-free money you’ve put in there to cover health care or dependent-care costs will disappear if you don’t spend it by Dec. 31. (Some employers offer an extended grace period — until March 15 — to use up the money.)

2. Donate, donate, donate: There are mere days left to make donations to your favorite causes and charities. A few notes on tax deductions: If it’s a cash donation, you’ll need a bank record (canceled check, credit card statement, etc.) or a written receipt from the charitable group. Any donation above $250 always requires a written record from the charity.

If you’re donating “gently used” clothing, furniture and other household items, keep a list of each item’s estimated value. The Salvation Army, Goodwill and others have online lists, such as $2 to $12 for a man’s shirt, depending on condition. (Another option: Figure 25 percent of what you paid for it new, then lower the value based on condition.)

For vehicles and boats valued above $500, you can take a charitable deduction of the fair market value or how much they sell for if sold/auctioned by the charity, whichever is less.

Be careful where you donate. “I see a lot of people giving money to organizations that shouldn’t be in business,” says Sacramento, Calif., tax preparer Dennis Graff, who recommends that clients check with rating services like CharityNavigator.org to see how much the charity spends on administrative costs. “If I’m giving a dollar, how much goes to the cause I’m supporting? If it’s only a nickel, I’ll find (a charity) that does a better job of distributing the money,” says Graff, co-owner of Just Taxes.

3. Watch IRAs and 401(k)s: With your IRAs and 401(k)s, there are several deadlines to note.

For IRAs, if you’re older than 70 1/2, you’ve got until Dec. 31 to take your annual mandatory distribution. “People forget to do it fairly regularly,” says tax preparer Graff, who says it’s also common to take out too much or too little. Typically, the financial institution holding your IRA will send a letter stating the “required minimum distribution,” known as RMD, which changes yearly based on your age. There also are online calculators — search for “IRA minimum distributions” — or call your IRA account holder.

If you miss the Dec. 31 deadline, the penalty is 50 percent of the amount you did not withdraw. “It’s a huge penalty,” says Graff, who noted that you can make a single draw from one account to cover your combined RMDs.

For 401(k)s, don’t forget to maximize your annual contribution, especially if your employer offers a matching contribution. If you’re getting a year-end bonus, consider using it to increase your 401(k) contribution, says CPA Gregory Burke of John Waddell & Co. in Sacramento. “Put in enough to at least get your employer’s match; otherwise, you’re leaving money on the table. And if you can, put in the maximum amount for 2013, both for the tax advantages and to build up your retirement savings.” The annual contribution limit for 401(k)s this year is $17,500, with an additional $5,500 catch-up contribution for those 50 and older.

4. Dump the losers: This year, with a booming stock market, many investors could be seeing sizable gains in their stock portfolio and in year-end mutual fund distributions. “This year, it could be substantial,” says Graff, who recommends reviewing your investment portfolio to find potential losers that could be sold to offset the 15 percent capital gains tax. “Take stock of what you have. If you have some losers that aren’t ever going to recover, dump the dogs.”

Likewise, Burke says that many investors may have Treasury bonds that have decreased in value this year as interest rates went up. “If you were thinking of selling them anyway, sell them now to generate some tax savings and to offset your gains.”

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