Market Overview
Calendar’s end
We apologize in advance.
You’re probably already stressed out getting ready for the holidays and we’re about to dump a whole new set of to-dos on you. But year-end financial planning is part of what some call “adulting”. And whether you’re new to adulting or you’ve been doing it long before there was a word for it, ‘tis the season to carve out a little time for it.
We’ll make this as painless as possible.
Don’t Scrooge yourself out of your benefits
Max out your 401(k) contribution. Any program that provides a matching 401(k) contribution is essentially giving you free money. Take advantage of that. True freebies in this world are few and far between. And then contribute to your retirement plan past the matching amount, and sock away as much as you can afford to.
Review your health savings account and flexible spending account. If you’re contributing the maximum to your HSA and FSA, then you’re helping to reduce your tax liability. Plus, with HSAs, you could be saving for retirement. Of course, you might need to spend some of it later, so be sure to check your plan’s rollover policy. Be mindful with FSAs, as you need to burn through your account balance by year’s end.
Keep at least four of your five golden rings from the IRS
Review required minimum distributions. If you’ve inherited certain assets such as an IRA, you might have required minimum distributions. You should find out if this applies to you, what the RMD thresholds are, and be sure to withdraw at least that amount before year’s end. This will help you avoid penalties.
Manage your side business’s income and expenses. If you have a side hustle – and who in 2019 doesn’t? – then you need to do what full-time entrepreneurs have been doing since the advent of business taxes: defer income recognition and accelerate expense recognition. Needless to say, talk to your accountant about what you specifically can and can’t do.
Donate to charity. The real reason to give is that you believe in the mission of the organization to which you make a contribution, but who among us doesn’t like to save a little money in taxes along the way? You probably already know that the tax reform legislation passed in 2018 made doing your taxes easier for most people, but it also meant that a lot of the old deductions went away. Still, there may be a chance for some tax benefit to donating in this season. Again, talk to your accountant.
Write off your bad investments. Even the best of us in the securities markets pick dogs sometimes. If you have negative positions in your portfolio, you might want to consider cutting your losses before December closes out, a technique sometimes referred to as “tax harvesting”. Be careful, though, of running afoul of wash sale rules, which prevent you from buying these dogs back in early January. Your financial advisor can tell you more.
Stocking stuffers
Take care of retiree business. We’ve heard it before from pensioners: “I don’t know how I ever found time to work!” Of course, we’re happy they’re staying active, but the fact is that financially managing your own retirement requires some effort. To start with, retirees over age 70½ need to be aware of the required minimum distribution provisions that apply to their IRAs; there are calculators online to help in calculating yours, but it couldn’t hurt to talk to a financial professional. Same goes for reviewing life and long-term care insurance policies, which were likely purchased when you were in a different stage of life. If you have made it to your golden years, now can be a great time to consider making gifts to family members to reduce their possible exposure to future estate taxes; the IRS allows you to give each individual $15,000. This is also the time to review who you want to name as the beneficiaries of your insurance policies, recipients of your gifts, and inheritors of your estate. After all, if you’re playing Santa Claus, you get to make lists of who’s been naughty and who’s been nice.
Stop spending what you don’t have. Not everybody, though, is facing decisions of how to unload as much money as they can before the ball drops on December 31. Tired of how commercial Christmas has become? Then don’t go into debt to buy presents. The greatest gift you can give your loved ones is your time.
Don’t wait too long to contact your financial advisors about all this. It’s December for them too.
Steve Anglin, CPA is a Managing Partner at Smith Anglin Financial, and the Head of the Tax Preparation Services. He is also responsible for Smith Anglin’s compliance supervision. He holds a BBA in Accounting and a BBA in Real Estate, and numerous securities licenses and designations.
