Most financial to-do lists focus on what you need to get done by Dec. 31, but there’s also a brief window early in the new year to save yourself some significant cash. Here are three tasks to consider doing now:
1. Avoid tax penalties
If you live in a high-tax area, have a bunch of children or otherwise take a lot of deductions, you may face an unpleasant surprise on April 15. It won’t just be a big tax bill. You may also face penalties for not having withheld enough taxes in 2018.
Some people “are going to be in really sad shape,” says Cari Weston (no relation), director of tax practices and ethics for the American Institute of CPAs.
Tax experts say many people are still unaware of how many tax rules have changed. Personal exemptions no longer exist, for example, which can be a problem for people with many dependents. People also can only deduct up to $10,000 of state, local and property taxes combined, when there used to be no limit.
Free income tax calculators can help you estimate your tax bill, or you can turn to a tax pro. You might face a penalty – essentially interest on the amount you should have paid, but didn’t – if you’ll owe more than $1,000 on April 15, Weston says. But there may still be time to avoid it.
Most people can dodge the penalty if their withholding in 2018 at least equaled the total tax they owed the year before (that’s the amount shown on line 63 of your 1040 form for 2017). People with adjusted gross incomes over $150,000 must have withheld at least 110 percent of the previous year’s tax.
Those who withheld too little can still avoid the penalty by making an estimated tax payment by Jan. 15. Instructions are on the IRS’ payment page.
2. Consider front-loading your medical expenses
Scheduling routine health appointments and screenings early in the year helps make sure they get done. You could catch problems before they get bigger and more expensive.
Front-loading your costs can also help if you have big medical expenses later in the year. Most health insurance comes with out-of-pocket maximums, which is the most you’re expected to pay in a year counting copayments, deductibles and coinsurance amounts but not counting premiums. The average out-of-pocket maximum for employer-provided health plans was $3,872 for a single person in 2018, according to the Henry J. Kaiser Family Foundation. Once you hit your plan’s limit, your insurance typically starts picking up the entire bill for medical care for the rest of the year.
If you have a flexible spending account for medical care through your employer, draining it early in the year can be a good plan. Although payments for FSAs are deducted from your paycheck throughout the year, you don’t have to contribute the money before you can spend it, says Sander Domaszewicz, principal at consulting firm Mercer.
You can submit claims and be reimbursed for the full amount you’re scheduled to contribute for the year (up to $2,700 in 2019) at any time.
If you lose your job or quit, you don’t have to pay back the difference between what you’ve contributed and what you’ve spent.
3. Set up (or adjust) your savings buckets
“Savings buckets” are savings accounts for a specific purpose, such as vacations, property taxes, life insurance premiums, car repairs and so on. You figure out roughly how much money you’ll need and when, then set up automatic transfers so the money is there when you need it. Having the cash on hand means you don’t have to charge it (and pay high credit card interest rates) or take out expensive loans.
Some people who do this have a single savings account at a traditional bank, using a spreadsheet to keep track of how much has been accumulated for each purpose.
But online banks make it easier and more intuitive. These banks typically allow you to set up multiple sub-accounts, with labels you choose, and don’t charge monthly fees or require minimum balances.
If you’re already saving for non-monthly expenses, see if you need to tweak the amounts.
Property taxes typically go up every year, for example, but you may have to save less for car repairs if you recently bought a newer vehicle.
A few minutes spent on these chores now could save you money, time and stress throughout 2019.
Liz Weston is a columnist at NerdWallet, a certified financial planner and author of “Your Credit Score.” Email: [email protected]. Twitter: @lizweston.