7 year-end money moves to save cash and get ahead of tax season in 2017


The calendar says December — but you already need to be thinking about April 2017. How happy you feel when you file your taxes in April may depend on decisions made in 2016: Did you give to charity? Get a new job? Get married? Or use a flexible spending account?

All these factors — and others — could affect your tax situation; to lock in savings worth hundreds and even thousands of dollars, you have from now until Dec. 31 to set yourself up.

The clock is ticking.

President-elect Donald Trump's administration is expected bring about "the largest tax change since [former President Ronald] Reagan," Stephen Mnuchin, Trump's pick for treasury secretary, said to CNBC.

That means you might not get another chance to enjoy certain tax perks — including currently looser limits on itemized deductions.

Follow this to-do list to pay less in 2016 taxes, and get ahead on use-it-or-lose it benefits that expire after the new year.

1. Snag little-known tax deductions.

While you don't need to submit your tax deductions — which reduce your taxable income and therefore the total you owe — until April, the window of time to take action on itemized deductions for 2016 will end Dec. 31. 

If you don't itemize, it's OK: A single person can expect to get a standard (un-itemized) deduction of $6,300 and a married couple filing a joint return will get a standard deduction of $12,600.

But itemizing might save you more — and for that, you'll need 2016-dated receipts.

You might be surprised by the wide range of stuff you can write off, assuming you meet certain spending thresholds.

Are you required to buy a uniform for your job? Do you subscribe to magazines for work? Did you pay for career counseling this year? Get those receipts — you can deduct these and many other expenses. You can even write down depreciation on your laptop or cellphone if you must use them for work.

You can also deduct the cost of medical and dental bills, but only if they exceed 10% of your gross adjusted income — a high bar to meet. Say you earn $50,000: If you paid out $4,000 in medical fees, you won't get a deduction. 

While most people's expenses won't clear the bar, if you're already having an expensive year medically and are getting close to the 10%, go ahead and schedule any planned procedures for before Dec. 31. If you question whether a medical or dental expense is deductible, you can check with the IRS.

Again, you might be surprised by what counts: It's not just out-of-pocket costs and premiums; you can also deduct the cost of transportation you take to get medical care.

This could be one the last years you see itemized deductions in this way, if proposed sweeping tax changes under the Trump administration come to pass: Trump outlined a plan that would raise the standard deduction to $15,000 and to $30,000 for a married couple — and cap itemized deductions.

If you own a home and pay a mortgage, your interest is currently deductible, and that — along with charitable giving — is among most popular and reliable itemized deductions: the "apple pie and baseball for the tax code," Richard Auxier, a research associate at the Tax Policy Center, told Business Insider. These may still be available in Trump's revamped tax plan.

Deadline: Dec. 31

2. Donate to charity — and get a tax break.

The time between Thanksgiving and the end of the year is traditionally a time when people are doing the most of their charitable giving: In 2015, Americans gave a little more than $373 billion during those winter weeks.

Before the end of the year, be sure to make any charitable gifts — goods, money or even securities like stocks — you hope to deduct from your taxes.

You likely have causes and organizations that are close to your heart to which you'd like to contribute. It is always good to check the organization's status to be sure your donation will count, since donating to certain charities won't get you a deduction.

Use the IRS database to see which organizations are eligible to receive tax-deductible charitable contributions. You can also check out organizations on Charity Navigator or Guide Star

If you are donating goods, you will need to be aware of their value and condition. Household goods like furniture, electronics, appliances and clothing must be in good used condition to be tax deductible, according to the IRS. But the item doesn't have to meet this "good condition" standard if it is valued at more than $500 and you include an appraisal with your tax return. 

Also needed to get the deduction for the gift? Documentation from the charity for all gifts valued over $250 or more, with a description of the items.

When donating money, the critical thing needed to deduct it is documentation

You're not going to be able to take the deduction on the cash donation unless you provide a record of the contribution, such as a bank record or a document from the charity like a receipt or letter.

One of the most tax-efficient ways to give is to donate appreciated securities, like stocks.

If you have mutual funds, stocks or bonds that have appreciated over time, you can donate them to charity with two big benefits: First, they are given to the organization at the full fair market value of the holding, up to 30% of the donor's adjusted gross income. Second, because you're giving the securities away, you do not have to pay capital gains tax on the appreciation.

Good news, procrastinators: If you make a donation on your credit card in December 2016, but don't pay off the credit card bill until January 2017, it still counts. 

The same goes for snail mail: If the check is in the mail in 2016, it counts, even if it arrives in the new year.

Deadline: Dec. 31

3. Maximize retirement contributions to your 401(k), IRA or Roth account.

Dec. 31 is the last day you can contribute to your 401(k) to get the saver's tax credit, assuming you meet the income requirements. 

Credits are generally more generous than deductions because they lower your tax bill dollar for dollar — instead of just lowering your taxable income.

The IRS grants a credit of 50%, 20% or 10% of the amount you contributed to your 401(k) or IRA up to $2,000: If you, as an individual, have an adjusted gross income of $18,500 or less, you will get the 50% credit. If you have an adjusted gross income between $20,000 and $30,750, you will get a credit for 10% of their contribution.

Even if you make too much to qualify for the credit, making a 401(k) contribution is pre-tax and thus decreases your taxable income — meaning it lets you pay less in tax, just like a deduction.

Depending on your income, you might save more than $1,000 this way — and some may even drop into a lower tax bracket.

The maximum 401(k) contribution in 2016 is $18,000: That is likely out of reach for most people, but try to aim high, both to enjoy lower taxes and to start building your nest egg.

Many experts recommend saving at least 15% or more of your income if you are working toward an early retirement. One study suggests you'll be in big trouble if you aren't saving at least 22% of your income every year.

A minimum rule of thumb is to at least contribute enough to maximize any company match, which is essentially a 100% return on your money.

The dirty little secret about individual retirement account, or IRA, and Roth IRA accounts is that you can actually contribute right up to your tax filing deadline, which falls on April 18, 2017; but do not tell that to the procrastinator in you. 

Contribute for 2016 before the end of the year, just so it is done. The limit for IRA contributions for 2016 is $5,500.

Deadline: Dec. 31 for a tax credit on your 401(k) contribution; April 18, 2017 for a tax credit on your Roth IRA contribution

4. Treat yourself to a plug-in car or an energy-efficient home makeover.

If you buy in 2016 an electric car that plugs in, you could earn up to $7,500 in tax credits

According to the IRS, the relevant credit starts with a $2,500 base. You may earn $417 if you have a car with a battery that has at least 5 kilowatt hours of power and $417 for every kilowatt hour of battery beyond that. 

The government wants to encourage electric vehicle purchases: In addition to the federal tax credit, some states also offer credits and rebates for purchasing plug-in cars.

The IRS provides a list of cars that are included.

Similarly, you can get a tax credit if you buy and install particular alternative energy equipment — like solar hot water heaters, solar electricity equipment and wind turbines — in your home.

The credit, which runs through 2016, amounts to 30% of the cost of qualified property.

Deadline: Dec. 31 

5. Use up any money in a flexible spending account.

If you have a flexible spending account, or FSA, you will need to use it before the end of December or risk losing it. The maximum amount for FSA contributions in 2016 is $2,550.

Flexible spending accounts are benefit plans offered by employers to help employees cover out-of-pocket medical expenses that may not be covered by the employer's medical plan.

Usually FSAs are funded by the employee who chooses to have some of their pre-tax pay go to the account. Employers can also contribute.

The use-it-or-lose-it rule may depend on your company: Employers are allowed to grant employees the chance to roll over up to $500 from the FSA — or take an additional two months to use what is in the account. Whether one of these options is offered is at your employer's discretion, but the government says employers can't offer both.

If you do not have a grace period or a rollover opportunity, there are several ways you can use up the remaining money in your flexible spending account.

You can use it to pay for eye exams or pregnancy tests — and even sunscreen. Find the whole list here.

Deadline: Dec. 31 

6. Consider a Roth conversion.

Having a low-income year? Or, at least anticipate making more in the future? 

Most of us do. 

If your earnings were paltry in 2016, you can turn lemons into lemonade by rolling over your traditional IRA into a Roth IRA: The money will be taxed at your income tax rate now, which will (hopefully) be lower than in the future, when you're making bigger bucks.

Once it is in the Roth IRA, the money can be withdrawn tax free in retirement.

A conversion often makes sense if you have money outside of your IRA to pay the tax on the conversion — and you are 10 or more years ahead of retirement, according to Shannon Eusey, president of Beacon Pointe Advisers.

Good news for millennials.

Deadline: Dec. 31

7. Adjust your tax withholdings.

Did you get another job this year? Did your family size change this year? Are you two now? Or maybe three? 

Adjusting your tax withholdings to reflect the number of deductions you take makes a difference in how much you pay in taxes or the refund you get back. 

When you have too much money withheld, you're basically lending the government cash without interest. That's an opportunity cost. Lower your withholdings, set up your accounts so that an amount of money equal to the difference automatically goes into a high-interest savings account (so you won't even notice the change), and voila — you'll be richer by April.

Of course, when you have too little withheld, you can get whacked with a sticker-shock come tax time — and that's no fun either.

So aim to withhold the right amount: The correct withholding will ensure you keep the most of your money and are prepared for the amount of tax you'll need to pay.

Here are some life changes that might require you to revisit your withholdings:

A second job: Any time income goes up, tax liability will increase too.

You're unemployed for part of the year: If you're rehired later in the year, you'll need to increase allowances on a new W4 to avoid paying too much tax.

Getting married, or divorced: Married couples filing jointly get a lower tax rate and certain deductions. A divorce will bring you back to single status — and reverse some tax benefits.

Having or adopting a baby: A new person in your life brings with it tax benefits (and joy). Reduce your withholding to account for the added tax benefits. If you leave your withholdings, it will likely result in a big tax refund, which means opportunity cost.

Deadline: Technically you can change this anytime, but the earlier in the year you do it, the more impact it will have for your tax year.