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4 year-end financial tasks

By Paula Pant · Bankrate.com
Tuesday, December 4, 2012
Posted: 2 pm ET

The holiday season is a busy time. Between year-end work projects, travel plans and family obligations, December can feel like a time-crunched month.

Despite the hectic holiday rush, it's important to devote some time to essential end-of-the-year financial tasks. Here are four:

1. Use your FSA. There are two primary types of tax-advantaged health savings accounts in the U.S., the health savings account, or HSA, and the flexible spending account, or FSA.

Many people confuse the two, so let me make an important distinction: Money in an HSA carries over year-to-year, money in an FSA does not.

That means FSA holders should spend down the balance in their accounts. It's time to visit the eye doctor, order contact lenses, get your teeth cleaned and get that routine checkup you've been putting off. FSA funds can also be used to cover co-pays, deductibles, qualified prescriptions, insulin and medical devices.

The federal government allows employers, at their option, to extend workers a 2.5-month "grace period" to use the balance in their FSA accounts after the end of the plan year. That means you may (or may not) have an extension until March 15 to use your FSA balance, depending on your employer's policies.

2. Reduce taxes in your portfolio. Many investors choose to rebalance their portfolios once a year. You may want to do so before Dec. 31 so you can reduce your tax burden by locking in your losses or offsetting your gains during this calendar year.

Of course, you should talk to a tax professional about the smartest tax-related moves for your personal situation. Pencil in two appointments on your calendar: one with your tax adviser, and another with your financial planner.

3. Make charitable donations. While meeting with your tax adviser, ask him or her about the tax effects of charitable donations you are considering. You might want to make donations before the clock strikes midnight on New Year's Eve so you can count the contribution toward your 2012 taxes. Of course, it's also possible your tax adviser may recommend deferring charitable contributions until January, depending on your tax situation.

4. Keep holiday spending in check. Monitor your checking account balance regularly as you spend money this holiday season on gifts, travel, meals and donations. It's easy to blow your budget without realizing it.

Paula Pant blogs at AffordAnything.com about creating wealth and living life on your own terms. She's traveled to nearly 30 countries, owns five rental properties and owes her great life to strong money-management principles. Follow Paula on Twitter @AffordAnything.

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