Episode 005: 8 Critical Financial Moves to Make Before the End of the Year

What’s this Episode About?

With the end of the year approaching there are some critical steps you need to take before the new year arrives.  We have so much fun working through all the details in this podcast episode and recommend you listen in to get the whole scoop.  Because there is so much however, we’ve laid it out here so you can listen without having to take notes.

We do share that we are not financial advisors.  Instead, we are a couple that want to share with other families ideas that we have discovered or learned from our own experiences.  Please make sure to talk to your financial advisor and do your own research, considering your own situation as well.

We shared about the email we received from listener Melissa on how excited she was to get her $30 earnings on the tips we shared in the last episode.  Make sure to check out our last episode to get those tips laid out step by step.

These 8 tips are not listed in any particular order.  Lets get started!

#1 – Review your Health Insurance

There are many tips surrounding this step.  

• Check your balances on your deductible and max out of pocket
• If you need to schedule a doctors appointment, eye appointment, or medical procedure contact your doctor to get that scheduled.  This can help you maximize a met deductible.  Even better if you’ve met your max out of pocket you can get it for free.
• Make sure to get your prescriptions in before the end of the year.  Some will let you refill a bit early so getting those prescriptions early will let you buy them this year and not have to start applying towards your deductible (aka, paying full price) in the first of the year.
• Order medical supplies with enough time for them to process the order.  Some companies won’t bill your insurance until the day it ships.  We share our own mistake we made a couple of years ago when our order didn’t process until after the first of the year.  We also share a tip on how you can order them early.

#2 – Review your Flex Spending Account (FSA)

Know your balance

You’ll want to discover what your balance is on the FSA.  It’s critical that you know how much is left as you need to request reimbursement for your medical expenses by the deadline – usually the end of the year.  We do share a couple of exceptions to that rule.

Some employers give you one of two options (one or the other but not both – see the resources for the article from the IRS):

• A grace period (generally 2.5 months expiring March 15 of the following year) – What this will do is allow you to claim and request reimbursement for any medical expenses incurred by that date on the prior year’s FSA balance.
• Use the Affordable Healthcare Act allowance of $500 rollover – Some employers allow you to roll $500 of this year’s balance over to be used any time the following year.

Know the cutoff date

It’s critical you know the cutoff date as that use-it-or-lose it account will just go away.  You don’t want to lose your money!

With that we share some tips on eligible expenses you might not have considered.  We especially share this as we know some of you might need to find more reimbursements as the deadline approaches.

• Mileage driven for any medical reason.  Review all the appointments you’ve had through the year and multiply by the allowed rate.
•  If you are traveling specifically for medical reasons (e.g., a sick child or spouse) then even a hotel stay can be reimbursed if only used for that purpose and the amount is not extravagant
• Bandages and other over the counter (OTC) medical supplies
• Chiropractic care – even those that do not charge your insurance can qualify
• Eye glasses or contacts.  Even prescription sunglasses.
• Lasik surgery
• OTC medications.
• Radon Test Kit – we were shocked by this

Also for OTC medications and medical supplies, when you order at Walgreens, look at the receipt as an “F” to the left of an item will mean an FSA reimbursable purchase.

We share a number of tips how we have combined these ideas ourselves to submit claims to zero out our FSA.

The new ideas will help you decrease your tax liability.  We encourage you to mock up your taxes using either a software like TurboTax or H&R Block to understand whether seeking additional deductions might not only help you decrease your taxes you pay in general, but maybe even lower you into a different tax bracket.

#3 – Review your Health Savings Account (HSA)

Did you know that you can adjust the amount you deduct per paycheck for your HSA?  You don’t need to wait for life events to occur to make that change.  You might only have a couple of paychecks left but talk to your HSA plan administrator and find out how you you can change the amount you deduct per paycheck.

Another idea to consider is putting in a post-tax contribution into your HSA.  When you prepare your taxes then you can add that contribution as a deduction to make it as if it was a “pre-tax”.

Now remember that as we discuss ways to put more pre-tax dollars into your HSA that you will only be able to add up to the limit set by Congress each year.

#4 – Make a charitable deduction

We love giving to some of our favorite charities at the end of the year.  There’s a few that we really love to give to at the end of the year.  Often another donor is offering to match donations up to a certain amount dollar for dollar.  What this does is essentially “double” your donation.

Don’t forget that you don’t just have to give money, but you can also donate items as well.  This works great as you clean our your home before Christmas.  This is another place where software like TurboTax or H&R Block can help walk you through determining the value of the items you donated.

Also remember that charitable donations are not tax credits, but rather just part of your deduction.  We encourage you to give to a charity because you really want to.  Then as a side benefit you can receive the deduction on your taxes.

#5 – Purchase items for your business

Review any assets you might need very soon and consider making the purchase this year.  That way you can add that onto your taxes in your Schedule C and yet again reduce your tax liability.  This is definitely a section you will want to talk to your financial advisor about.  There are so many considerations and details surrounding this.

#6 – Contribute more to your child’s 529 plan

Likely if you have a 529 plan then you already know the details about this plan.  A 529 plan is a tax-advantaged savings plan that allows you to save more easily for college.  You likely also know that any contributions to that plan cannot be used as a federal tax deduction.  But did you know that 30 states offer state tax deductions for making contributions to the plan?  If you are already saving in this plan and are on the list of states (see our resources below) then consider adding additional money and taking advantage of those tax benefits in your state.

#7 – Check whether you are close to deducting your medical expenses

If you have a significant number of medical expenses for the year, review whether the total you have spent exceeds 10 percent of your Adjusted Gross Income (AGI).  If it does you should be able to deduct that on your taxes.  We wanted to let you know about this opportunity in case you didn’t know. 

If you might be eligible for this you might want to consider building up your medical expenses that you were planning to do anyway in the future.  Also, if you are paying on a medical claim for this year consider paying more before the end of the year so you can deduct that as well.

#8 – Maximize your contributions into your retirement plan

We are going to approach this topic in two different directions.

• Obviously investing into a pre-tax plan such as a Traditional IRA or a 401(k) could help decrease your tax liability.  As you shrink your AGI you lower the amount of taxes you pay.
• Everyone thinks about taxes.  Even more though is maximizing your investment amount for the current year.  Once the year is up (with one exception – see below) you can’t go back and give towards “last year’s limit”.  Once a year is past you’ve lost your opportunity to max out your pre-tax investment for that year.  Don’t miss out on that opportunity cost!

Traditional IRA accounts are that exception.  They allow you to contribute money into your “current year’s” plan even into the following year up until April 15th.  That money can count towards this year’s contribution limit and also help shrink your AGI as well.

Our 2% Tip of the Week:

The 2% Tip is where we share an idea to either shrink your budget or increase your income by 2%.  This week we are considering a tip to help you decrease your budget by installing a programmable thermostat.

A furnace technician recently mentioned how much cheaper it is to heat your home as opposed to cooling your home.  If you know you’re going to be gone for a certain amount of time then schedule your home to drop in temperature while you are away and then warm up before you get home.

Resources mentioned in this podcast:

• Check out our book, The 2% Rule to Get Debt Free Fast: An Innovative Method To Pay Your Loans Off For Good .  We discuss retirement investments more in depth and advantages of using a Roth IRA.
• We created a 64-page workbook to give you the tools and the resources to help you pay off your debt.  You can see the digital version or the printed version.
• Read the IRS announcement that provides details about the FSA plan.  Employers may provide the $500 rollover options for their FSAs.  Alternatively they may offer a 2.5 month grace period to allowing medical expenses up until March 15 of the following year.  As the article states, “Employers can offer either option, but not both, or none at all.”
• Check out Publication 502 from the IRS, or more specifically their official document that lists the eligible expenses that can be reimbursed by a FSA or HSA.
• You can see where the IRS states that mileage specifically driven for medical reasons or also the announcement by the IRS stating that same value as well.
• We mentioned an article by The Today Show on how to understand the legitimacy of a charity.  Plus we shared an article on how to maximize your tax refund that gives a list of considerations when donating to a charity.  We finally mentioned the article on how to avoid a scam when donating to disaster relief that might help you as well.
• See the list of 30 states that offer some type of tax deduction for their states’ income tax.
• We shared an article on why you should consider installing a programmable thermostat to help reduce your expenses without thinking about it!

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