Financial fine-tuning you must do before year's end

The waning weeks of 2016 will be filled with year-end tax and financial-planning tips. But why wait until then? Here are some money actions worth considering now.

• Use expiring benefits. Certain employee benefits must be taken by the end of the year or they'll be lost. The obvious one involves medical flexible-spending accounts, but others could include vacation or sick time. With flexible-spending accounts, you add money on a pretax basis. The money can be used to buy all sorts of items not typically covered by health insurance. The typical deadline for spending the money is Dec. 31, though some employers allow grace periods extending into mid-March or the ability to carry forward up to $500.

• Harvest tax losses. Depending on how your investments have fared, you might be sitting on capital gains or losses. Usually, you want to postpone gains at least into the following year while realizing, or locking in, losses in the current year so that you could use them in the upcoming tax-filing season. If you have stocks that are at a loss, you could sell them over the waning weeks of 2016 to offset capital gains that you realize this year. Beyond that, up to $3,000 in excess losses can be deducted against ordinary income, with unused amounts carried forward. This strategy is suitable for investments held in taxable accounts — not those in Individual Retirement Accounts, 401(k) plans and other sheltered vehicles.

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• Download credit reports. There's no requirement to check your credit reports by Dec. 31 or any other date. But if you haven't accessed these records lately, why wait? Only about 60% of adults check their credit reports each year, according to an American Bankers Association study in 2015. That means maybe 40% of Americans are neglecting to monitor the debts, delinquencies and other information listed on their credit reports. Many reports contain errors or omissions that should be corrected. Anyone can receive three free credit reports every 12 months — one each from Equifax, Experian and TransUnion — through annualcreditreport.com. 

• Beware capital-gain payouts. This is the time of year when many mutual funds, especially stock portfolios, pass capital gains along to shareholders. Generally, you don't want to receive one of these payouts if you can avoid it, as they will be taxable in the coming filing season. Also frustrating: A distribution could reflect profits the fund generated in prior years, possibly before you invested. If you're thinking about buying into a fund, it's thus best to wait until after a taxable distribution has been made. Check fund company websites or call to find out the schedule. This caveat doesn't apply if you're investing inside an IRA or other tax-sheltered account.

• Set up bank, credit alerts. More Americans are banking electronically. In a recent American Bankers Association survey, nearly three in four respondents said they primarily do business on computers, using smartphones or other mobile devices. All those digital customers are in a great position to set up alerts to spot or avoid trouble. Alerts, which also can be used on credit and debit accounts, can provide notifications of payments due, low account balances, suspicious charges or transactions over preset dollar amounts.  

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• Draft a budget. Many people make budgeting a top New Year's financial resolution, but there's no reason to delay until then. By starting now, you can get into a routine that will have you in an expense-tracking rhythm by January. You also might better prepare for holiday gift-giving expenses if you plan ahead. You want to track expenses over at least a 12-month period, remembering to account for large costs that you might not pay each month, such as insurance, estimated income-tax payments or property taxes. Although budgeting isn't difficult — and you can find all sorts of guidelines online — only about one-third of Americans do this regularly, according to a 2013 Gallup poll.

• Research charities. Of all the year-end tax-saving actions to take, donating money to charity is among the easiest, but there's no reason to wait to decide which non-profits to support. Research services such as Guidestar.org and CharityNavigator.org list free information that can help you evaluate a non-profit — including whether it's legitimate — well before the phone and email solicitations arrive. Donations aren't deductible on federal returns unless you itemize. Hence, you might want to go over this year's tax return to see if you're more likely to itemize or take the standard deduction — most taxpayers do the latter.

• Make required retirement withdrawals. If you're older than 70½ and have money in traditional IRAs, you might need to make a required distribution by year's end. The initial withdrawal can be deferred until April 1 in the year following the year you turned 70½ — for example, by April 2018 if you turn 70 this month (and thus will reach 70½ in April 2017). Subsequent withdrawals must be made annually by Dec. 31. The penalty for not complying is stiff  — 50% of the amount that should have been withdrawn. This requirement applies to money in 401(k) plans and most other retirement accounts but not to Roth IRAs.

• Consider hiring a financial adviser. In a recent commentary, financial adviser Nigel Green of Britain's deVereGroup cited three simple traits that he has noticed of wealthy investors — they believe in investment diversification, they know the fees they pay and they often seek advice. If you think you need help, now might be a good time to start looking, especially since many advisers get busy early in the new year with income-tax issues. A good place to start the search is online with professional associations such as those representing certified financial planners, fee-only planners, certified public accountants and tax specialists known as "enrolled agents."

Reach the reporter at russ.wiles@arizonarepublic.com or 602-444-8616.