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A last minute money move you won’t see anywhere else

by Jim Wang

Updated

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When this post first goes live, it'll be December 28th.

There are just a handful of days before the ball drops in Times Square and we usher in the new year.

I want to share one last minute money move that I promise you won't read or hear anywhere else.

Stop trying to optimize everything, slow down, and enjoy the rest of the year.

You don't need to get every last deduction or make every last “move.”

Slow down, enjoy the end of the year, and spend some time with friends and family.

I feel comfortable saying this because many of those last minute moves, they won't make a huge difference and can come with an invisible cost – stress.

One of the most popular last minute tax move suggestion is to prepay your mortgage. Make January's payment in December so you can claim the mortgage interest tax deduction this year.

It sounds great, right? Except you did it last year too.

In theory, you are prepaying your mortgage but you still end up with 12 payments this year because you already accelerated January's payment. Your prepayment benefited you the first year you did it, by giving you an extra payment that year. In subsequent years, it only gets you back to 12 payments a year. In theory, you could alternate years giving you 13 payments one year, 11 the next, 13 the following, etc. but that defeats the purpose of accelerating the deduction.

This also doesn't take into account the limits on state, local and property tax deductions!

What's the stress involved? You need to make sure the bank issues you a billing statement so there's something you can pay… otherwise the payment could go entirely towards the principal. That won't give you the tax benefit you seek.

What if you make the payment, the bank doesn't recognize it until 2016, and so your Form 1098 (which reports interest) is inaccurate. You need to call the bank to get the corrected one issued. Those take time.

And what financial benefit do you get out of it? You get your mortgage interest deducted from your income, lowering your taxable income, and now you pay some percentage less in taxes. It's awesome to pay less, I'm not disputing that, but the benefit is relatively small.

If you pay $1,000 in mortgage interest each month and are in the 25% tax bracket, that's $250. Not bad! Except for that deduction, you must prepay your mortgage every year or you give the deduction back. I don't like saving a little and being on the hook for a lot of work forever.

What's better than doing that? Skip the course corrections, these last minute things, and adjust your system to capture savings the entire year.

Use the Upgrade and Save Strategy where one move can result in downstream savings. Or do things like downgrade or cancel your cable, where one phone call results in savings each month. Don't look for these little last minute things because if it was such a big benefit, you wouldn't have seen it in the last minute, right?

Plus, life is way too short to be on the phone with your bank for no good reason.

Have fun.

I hope you have a good rest of the year and see you next year!

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About Jim Wang

Jim Wang is a forty-something father of four who is a frequent contributor to Forbes and Vanguard's Blog. He has also been fortunate to have appeared in the New York Times, Baltimore Sun, Entrepreneur, and Marketplace Money.

Jim has a B.S. in Computer Science and Economics from Carnegie Mellon University, an M.S. in Information Technology - Software Engineering from Carnegie Mellon University, as well as a Masters in Business Administration from Johns Hopkins University. His approach to personal finance is that of an engineer, breaking down complex subjects into bite-sized easily understood concepts that you can use in your daily life.

One of his favorite tools (here's my treasure chest of tools,, everything I use) is Personal Capital, which enables him to manage his finances in just 15-minutes each month. They also offer financial planning, such as a Retirement Planning Tool that can tell you if you're on track to retire when you want. It's free.

He is also diversifying his investment portfolio by adding a little bit of real estate. But not rental homes, because he doesn't want a second job, it's diversified small investments in a few commercial properties and farms in Illinois, Louisiana, and California through AcreTrader.

Recently, he's invested in a few pieces of art on Masterworks too.

>> Read more articles by Jim

Opinions expressed here are the author's alone, not those of any bank or financial institution. This content has not been reviewed, approved or otherwise endorsed by any of these entities.

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  2. Holly Johnson says

    My mortgage interest isn’t enough to make a huge dent in my taxes anyway. The only year-end tax move I made this year was putting 4K into my children’s college savings account. In the state of Indiana, we get a 20% tax credit on the first 5K we put in each year. I also put another big chunk into my Sep IRA – not really as a tax move, but it will help.

    • Jim says

      And that’s not necessarily a “year end” move necessarily right? It’s like making a charitable donation, just happens to be a nice time to do it. I just did our annual 529 contributions this morning too… 🙂

    • Jim says

      Yes – take the time to savor life! 🙂

      (and make sure you set up systems for the rest of the year… but do that next year!)

  5. Constance Burris says

    I thought the same thing when I read this recommendation about mortgage payments last year. I’m glad to see someone finally pointed out the problem with. Also, if you are on a tight budget, it interferes with savings and Christmas spending.

    I did call my cable company this month, and now they are paying me $5 a month to keep my package over the next year. 😉

    • Jim says

      Yeah, it’s always funny how people always bring up the mortgage prepayment… But you don’t benefit after the first year!

      Great win with the cable company!

  6. Vic @ Dad Is Cheap says

    Thanks for the advice Jim! Hope you had a great new year!

    I’ve never really worried too much about these last minute tips that financial sites usually give at the end of the year. I figure if you’re doing well financially over the course of a year that should be good enough. Plus, who wants to worry too much about finances during the holidays when you’re with your loved ones?

    • Jim says

      EXACTLY!

      I think the reason has to do with wanting to squeeze in that last bit of optimization before the opportunity passes. Prudence is important, no one is disputing that, but if it were important then why wait? And why cheapen or dilute the time with family and friends for these things? It’s improving the wrong parts of your life at the cost to the right parts. 🙂

  7. Tim says

    Jim, great points to consider. Its something i’ve been doing more over the last few months. I stopped spending a lot of time chasing so many deals etc to try and save a few dollars just to end up buying somethings I probably don’t even need. It can be a good skill to learn early on, but if done too much you’ll find you are spending too much of your free time on it. Between working and everything else if life, time seems to go by pretty fast. I’m looking to get more efficient and focus on the important things so that I have more free time to do more enjoyable things.

    • Jim says

      Yes, your time is your most valuable asset and it can easily be eaten up by things that you think are important… but ultimately aren’t.

  8. Rising Phoenix says

    Hi,

    I’m one of your new Pinterest followers. I really enjoy your pins so far. They’re really good ^.^ Thank you for that.

    But wow … u guys get deduction for paying your primary place of residence. That is reaaally good.

    In australia, we definitely do not get any tax deduction for mortgage repayment =(

    But one thing that I agree very much with you is this “Slow down, enjoy the end of the year, and spend some time with friends and family.”
    Money is one thing, but enjoying the year, spending time with friends and family, being happy is another thing =)

    • Jim says

      Welcome! Yeah we get a deduction on the interest we pay, not the principal. It’s nice but there are always unintended consequences because if there’s a deduction, our buying power increases and the supply of houses can only increase at a certain rate. So you could argue that the interest deduction helped potential homeowners initially, but eventually home prices adjusted upward to compensate. It’s a complicated situation but on the whole, I suppose the interest deduction is a positive for homeowners. 🙂

      Fortunately, we can all agree… live life. Enjoy it. 🙂

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