The last quarter of 2015 is a great time to review your finances, so you can ensure you’re on track for your annual tax return and look at your financial progress to update financial goals. Make these three end-of-the-year money moves to start 2016 in good shape.
1. Pay down any variable-rate debts.
The federal funds rate is poised to increase by the end of 2015, and in all likelihood, the rise will lead to higher interest rates on variable debts. This means that if you have a home equity line of credit, an adjustable-rate mortgage or variable-rate credit cards, you’ll pay more next year. Minimize your pain by using the time you have now to reduce your principal or, if possible, to completely pay off these debts. Alternatively, see about refinancing into fixed rates.
2. Donate to charity.
When you’re ready to offload gently used items, donating them to charity is often a good way to save on your taxes. Make sure to keep the statement of your donation from the charity, and check that the statement includes the date of the donation and its value. Calculate the value of items according to what they would go for in a secondhand shop as opposed to what you actually paid for them. If you’re considering donating a vehicle, you might want to trade it in or sell it instead to get more money. If the charity sells the vehicle, tax laws require that you deduct the price the charity plans to sell it for, which could be a really low amount. If the charity uses your car in its operations rather than selling it, you can deduct the vehicle’s current value.
3. Convert from a traditional IRA to a Roth if your income this year is relatively low.
Maybe 2015 has not shaped up as one of your higher-earning years due to unemployment, work downturns, health issues or some other reason. There could be a bright side, though. Convert your traditional IRA to a Roth IRA before Dec. 31, and pay taxes on the money now, while you are in a lower income-tax bracket.
As you make these money moves, you might realize that you want different savings goals for next year. That’s great; use this time to check in on where your finances are and where you want to go. For example, you could already have an emergency fund and are ready to begin contributing maximum amounts to your retirement plans. Do what makes sense.