Financial Moves to Make This Year

From Getting Tax Breaks to Using Up Expiring Mileage Awards

By BRETT ARENDS 

It’s that time of year again.

The stores are playing Christmas music. They’re decking the parking lots with boughs of holly. Plastic reindeer, elves and Santas are turning up all over the place.

It can mean only one thing. Black Friday is almost here, and there are just… er… two short months left ’til Christmas.

Looking for some smart money moves to make before the year’s end? Here are eight:

1. Cash in those losses.

It’s been a good year on Wall Street—the S&P 500 index has risen nearly 10%—and mutual funds are going to be making some big taxable distributions this year.

But not everything is up. And if you own stocks, bonds or mutual funds that are trading well below what you paid for them, you can book a loss to offset your capital gains by selling before the end of the year.

Be warned: There are complicating factors and it’s worth taking tax or financial advice. To meet tax rules, you can’t buy the security back within 31 days.

2. Giving to charity? Give stock.

If you want to give to a good cause, this may be a great time to give some of your highflying stock market winners, say financial experts.

The reason? You’ll avoid having to book a taxable gain when you sell—and instead you can deduct the inflated value of your Netflix or Facebook stock against your taxes. “This is one of the most tax-efficient ways to gift,” says Jason Lacey, a financial planner in Cedarburg, Wis. “This is a way for those who are charitably inclined to make their charitable dollars go farther and make more of a difference to the causes they care about.” 

3. Pay your mortgage early.

Sammy Grant, a financial adviser in Atlanta, says many homeowners miss out on an easy year-end trick which can bring forward some tax savings.

If your mortgage payments take place automatically at the start of each month, he says, change the Jan. 1, 2015 payment to Dec. 31, 2014. That one-day change means you’ll get an extra month’s interest deduction on your 2014 tax return.

It’s not much, but every little bit helps.

4. Start work on your taxes.

Ugh. Yes, indeed. But if you use tax software like TurboTax or Quicken, you may save some money by sitting with your paperwork and starting work before the end of the year, say advisers. That’s because it will give you a better picture of your situation while there’s still time left in the tax year to make changes.

Certainly, it’s a grind. But Tom Davison, a financial adviser in Columbus, Ohio, says that working it out before year’s end can reveal all sorts of dangers and opportunities while there’s still time to adapt.

Are you way over- or under-withheld on state or federal tax? If so, you can adjust your payments before year’s end. Have you taken all your deductions, for things such as your 401(k) at work and your individual retirement accounts?

Are you going to be subject to the alternative minimum tax (the parallel tax code that Congress passed because the first one wasn’t quite complicated enough on its own)?

If so, you may want to bring forward charitable deductions (which can be deducted under the AMT) and delay state and local tax payments (which can’t), he says.

5. Use annual gift allowances.

The estate- and gift-tax system is Byzantine, but there is one very generous loophole. Every year, you can give a certain amount to each beneficiary, completely free of tax.

For 2014, the allowance is $14,000 per beneficiary. If you have a large estate that’s likely to be hit with estate taxes after your death, and you have many grandchildren, nieces, nephews and other beneficiaries, using this exclusion each year can save your estate a lot of money down the road.

If you’re married, you and your spouse can give a combined $28,000 to each recipient before Dec. 31 (and another $28,000 after Jan. 1).

6. Use up expiring rewards.

Have you accumulated a lot of frequent-flier miles with an airline rewards program, or similar points with other programs?

You might want to check the fine print. Many of these programs let those rewards points expire if you haven’t used them within a certain period, and the expiration date for many of them is the end of the calendar year.

The good news? If you have tons of points due to run out on Dec. 31, you can use them to book a completely guilt-free trip to Florida or Hawaii for February.

7. Convert Your IRA to a Roth.

Have you had a tough year? Did you lose a job or see your income drop?

If you’re going to fall into a low federal tax bracket this year, consider using it as an opportunity to convert your traditional, tax-deferred IRA to a tax-free Roth IRA.

Conversions are taxable in the year they’re made, but thereafter you’re free of Uncle Sam forever.

Ann Gugle, a financial planner in Charlotte, N.C., says that can be a bargain many people overlook.

“Pay taxes at a lower rate today,” she says, “in exchange for tax-free growth in the future and no required minimum distributions in your lifetime.”

8. Check your portfolio.

You’ve been meaning to do this all year, but if you didn’t manage to do it at tax time or your birthday try setting the target of doing it before Christmas.

How is your money invested? How risky are your investments? Have you rebalanced—meaning selling some of your winners to buy a bit more of the underperformers, thereby restoring the original balance? Are you comfortable with what you own?

Portfolios should be rebalanced at least once a year, financial experts will tell you. And they should always be aligned with your goals and situation. If you haven’t checked recently, this is as good a time as any.

Or you can go to the mall and listen to “Jingle Bell Rock” 4,000 times.