This story was originally published on Dec. 6, 2019
Year-end. That term has different meanings for different people. For a financial advisor, my main goal at year-end is to make sure everyone crushes their New Year $$$ To-Do List. My advice is to get moving on the below checklist today and make sure it’s wrapped up before your year-end. So if you bounce for the holidays on December 23 until the New Year, you better get moving. Let’s get started!
Part 1: The Money & Tax Stuff
Make Sure You Contributed Enough To Your 401(k) And Other Retirement Accounts:
- 401(k) contributions are tax-free contributions. This means that you do not pay income tax on the money that you contribute to your 401(k). You can contribute up to $19,000 per year (and $6,000 more if you are 50 or over.) Contributing to a 401(k) allows you to pay income tax only when you withdraw money from the plan in the future, at which point your income and tax rate may be lower or you may have more deductions available to offset the income.To Do: If you have not maxed your 401(k) this year but would like to, make sure to alert the administrator of your 401(k) so you can increase your contribution for the last month of the year.
- IRA contributions don’t have to be made until you file your taxes but remember that you can contribute up to $6,000 to your IRA or Roth IRA each calendar year ($7,000 per year if you are 50 or older). IRA tax deductibility and contribution eligibility may be restricted if your income exceeds certain limits, so be sure to speak with your tax professional for more information.
Manage Your Income & Deductions: If you are a business owner, this is crucial to do before year-end. Also if you are at or near the next tax bracket, you should also pay close attention to anything that might bump you up.
- If you think you are on the verge of getting bumped into a higher tax bracket, consider making a charitable donation (see below for more on that).
- Determine if you should accelerate deductions or defer income, potentially allowing you to minimize your current tax liability. Sometimes your employer will allow you to defer bonuses to the new year. Also, if you are a business owner and are expecting a payment, perhaps see if it can be paid in the new year. Check with your accountant!To Do: If you are a business owner or freelancer, go through your annual revenues and expenses before year-end. Don’t wait until tax season!
Make Your Charitable Contributions: Charitable giving is good for the soul and for tax mitigation. Make sure to officially make your donation before December 31 for it to count toward your 2023 tax year. Remember that all non-profit donations are not necessarily tax-deductible. Make sure you verify this before making the donation. There are many different giving strategies that you can implement. They include:
- Giving good old fashioned cash (or check)!
- Donate gently used items and clothing.
- Donate appreciated securities: If you own stock that has appreciated over the years, you can receive an immediate tax deduction and this can also help you avoid paying capital gains tax on the appreciated portion of their value. Gifts also have the potential to reduce future estate taxes.
- More sophisticated gifting options: Gifting is a serious business. There are ways to gift through charitable remainder trusts and charitable lead trusts. You can also gift life insurance. If you are considering these options, please make sure to coordinate with a financial advisor, an attorney and potentially an accountant.
- Note that most political contributions are NOT tax-deductible.
- To Do: Make all charitable donations on or before December 31st and make sure to keep the receipt for tax filing.
Check Your Gains & Losses In Your Investment Account: In the investing world, we use a term called “tax-loss harvesting” where you evaluate whether you can benefit from selling a losing investment to offset gains or establish a deduction of up to $3,000. Excess losses can also be carried forward to future years. Keep the following things in mind:
- Short-term gains (gains that resulted in a sale of less than 366 days) are taxed at a higher marginal rate; aim to reduce those first.
- Don’t disrupt your long-term investment strategy when harvesting losses.
- Be aware of “wash sale” rules that affect new purchases before and after the sale of a security. If you sell a security at a loss but purchase another “substantially identical security” within 30 days before or after the wash sale, the IRS will consider that a “wash sale” and disallow the loss deduction.
- Talk to your financial advisor about what they recommend as the best tax-harvest strategy.
- To Do: Check with your financial advisor before December 10 to see if tax-harvesting makes sense for you.
Complete Your College Savings Contributions: If you utilize a 529 college savings plan to save for college, please make sure to get your full 2019 contribution in before year-end. In some states, your contribution is tax-deductible (make sure to check your individual state’s plan to learn more). You can make a $15,000 contribution per account. If you are married, you can do up to $30,000 per year. Don’t forget that 529 accounts grow tax-free if used for educational costs.To Do: Make all 529 contributions by December 31st to count for 2019 tax year
Part 2: The Strategic Goal-Crushing Part
Did Something Crazy Happen This Year? If you had any life changes from the past year or the upcoming year, it is important to think about how this event has or could impact you financially. Moving to a new state, getting married or divorced, having a child, changing jobs, or retiring are all important life changes. If you think that you have had a material life change that could or already has impacted your financial life, it could be a good time to talk to a financial advisor or hire one.
What Happened This Past Year?: Taking stock of 2023 is a healthy way to start off the new year. Go through your credit card and bank statements. Look at how you spent your money and think about if you could have done anything differently. Did you spend too much this year? Did you save enough? Think about what you accomplished and what money decisions you regret. This info will help you outline your goals for 2024.
Create An Outline For 2024: Start looking ahead to 2024 and think about if you have any major upcoming events/expenses that you need to account for. Are you getting married, taking a sabbatical, adopting a dog? Also, do you have enough money allocated for those unexpected things that pop-up (emergency fund)? You will need to create budgets for these goals and determine how you are going to achieve them. If you can start off the year with clear budgeted goals, you will be able to make better day-to-day spending decisions.
Next, think about some of the goals that you achieved this year. Did you reach your savings target? If so, congrats! Perhaps you set a higher goal for 2024. If you were unable to achieve your money goals for 2023, think about where you went wrong and try to create a more realistic goal for the coming year.
It’s Goal-Crushing Time: Now it’s time to create concrete goals. And while everyone should make one’s own goals, here are some good ones:
Part 3: The Miscellaneous
Protect Your Identity And Beef Up Security: Not a day goes by where we don’t hear a story about identity theft, credit card fraud, or phishing/ransomware attempts. Do some work to protect yourself and your family. Here are some ideas:
Final Thoughts: Allocate a few hours in the coming weeks to get your financial house in order. Getting prepped for the new year can be cathartic and exciting. Also, being super cognizant of your money situation and spending while still in the month of December will likely act as a reminder to spend less during the holidays. Double win!In general, if you think life is getting too financially complicated to handle on your own, it may be time to hire someone to help you. Perhaps that could be your new year’s resolution. Here’s to a wonderful holiday season and a happy 2024!
Kristin O’Keeffe Merrick is a Financial Advisor at O’Keeffe Financial Partners, LLC, located at 100 Passaic Ave, Fairfield, NJ. She can be reached at 973-227-3660.
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. O’Keeffe Financial Partners, is not a registered broker/dealer and is independent of Raymond James Financial Services. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and investors may incur a profit or a loss. Investors should consider before investing, whether the investor’s or the designated beneficiary’s home state offers any tax or other benefits that are only available for investment in such state’s 529 college savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state. Favorable state tax treatment for investing in Section 529 college savings plans may be limited to investments made in plans offered by your home state. Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan. Raymond James is not affiliated and does not endorse the services of LifeLock or Identity Guard.