Year-End Financial Checklist

Still, the close of the year is a great time to evaluate, assess, and strategize so that you end this year and begin the next with a clear picture of where you are and where you’d like to go.  While we cannot help you with the cooking, cleaning and gift buying, we can help with your financial year-end to-do list.

Here are a few quick and some not-so-quick suggestions to end this year on a high note and start next year strong:

Budgeting & Savings Goals

Revisit your target spending and savings goals and your emergency fund.

• Avoid the holiday shopping hangover. Assess your holiday spending estimates. Be realistic when thinking about how much you plan to spend this upcoming holiday season and avoid the temptation of taking on credit card debt.
• Revisit the financial goals you set at the beginning of the year (remember those?). Check off those that you have met and determine what action steps you can take on others you’d like to complete before year end. If you haven’t set any financial goals, now is a great time to start planning for 2024.
• Year-end windfalls, like bonuses, are a great way to juice your savings. Consider carving off a piece to meet your long or short-term financial goals.
• If you’re struggling to meet your financial goals, it might be time to check in on your employment status. What is your real earning potential? If your goals are misaligned with your current earning reality it might be time to consider some changes.
• Take a look at your emergency savings. Have your spending patterns or other circumstances changed over the past twelve months? If you bought a new house, took on new debt, changed jobs, or if your household added or lost an income stream you may want to adjust your emergency savings to meet your new reality.
• Another good bit of annual financial hygiene would be to request your annual credit report. By law, you can receive a free credit report from all three agencies through annualcreditreport.com every 12 months. Review the accounts opened for any incorrect or fraudulent activity, and look for ways to improve your credit score, if you have less than excellent credit.

Giving & Gifting

There may be ways for you to realize tax savings, depending on your situation. Meet with your accountant and financial advisor to discuss if the following strategies will work for you.

Charitable giving

Year-end is a popular time for charitable giving. The type of gift (appreciated stock or cash from a brokerage account, contributions of appreciated stock to a donor-advised fund, a cash gift from an IRA, etc.) should be carefully considered in the context of your overall tax situation.

Tax law changes from the end of 2017 add to the importance of a well-thought-out annual charitable giving plan. For example, the standard deduction for married-filing-jointly (MFJ) is $27,700 in 2023 compared to $12,700 in 2017. For a single taxpayer, the standard deduction rose to $13,850 in 2023 versus $6,350 in 2017. If your total itemized deductions do not exceed the higher standard amount, charitable gifts are effectively not tax deductible.

Qualified charitable distribution (QCD):

If you’re over 70.5, charitable gifts made directly from an IRA are a great way to get money out of your IRA tax-free. This type of charitable giving is called a Qualified Charitable Distribution or QCD. These types of gifts were made a permanent part of the tax code in early 2016. It’s very important that the distribution goes directly from your IRA to the charity intended, and not to your checking account first, and that the institution you’re giving to qualifies as a 501(c)3 organization. If either of these qualifications are bypassed it will negate the tax benefits of the QCD.

Donor-advised funds (DAF):

Grouping several years of charitable giving into one year, referred to as “clumping” or “bunching deductions, might allow you to exceed the standard deduction and allow your charitable gifts to be itemized along with other available Schedule A deductions. A donor-advised fund is a great tool to use if you don’t want to give away multiple years of gifts all at once. You can donate cash or appreciated stock to a DAF and give the gifts to the end charity over time.

Gifting appreciated stock from your taxable brokerage account is another tax efficient way to give. Using appreciated stock for charitable giving is tax efficient since you avoid capital gains tax on the appreciation. Structuring a charitable giving plan to incorporate a DAF allows you to time contributions to achieve the greatest tax benefit while maintaining the same level of annual gifting.

Annual exclusion gifts

The lifetime estate tax exemption currently sits at an astounding $12.96M per individual. At today’s levels, most families will not have to worry about ever paying Federal estate tax. However, if you have a goal of removing assets from your estate, for tax purposes or otherwise, you can make gifts of up to $17,000 to an unlimited number of individuals this year without cutting into your lifetime exemption. This limit applies to each gift, so a husband and wife could gift each of their children $34,000 ($17,000 x 2 individuals).

Retirement Plan Contributions

Don’t forget your retirement plan! You have options, depending upon the type of plan you have.

401(k)/403(b)/defined contribution plans:

If you’re an employee covered by one of these plans, your contribution limit this year is $22,500. If you’re over age 50, you can also make an additional “catch up” contribution of $7,500. The deadline to make contributions to your employer’s plan is December 31^st.

If you’re self-employed and have a Solo 401(k), there are two deadlines you should be aware of. The same contribution deadline and limits apply to your elective deferrals. However, you also have the ability to make a “nonelective contribution” as an employer. You have until your tax filing deadline to make this type of contribution. Your income will determine the total amount you can contribute, but it could be up to $66,000, not counting catch-up contributions.

IRA contributions:

The IRA contribution limit is $6,500. If you’re 50 or older this year, a catch-up contribution of an additional $1,000 is available for a total limit of $7,500. While the annual contribution limit is the same for all IRAs, the tax treatment isn’t. Speak to your advisor before making an IRA contribution to ensure the most tax-efficient approach, which can change from year to year. For example, if your AGI is equal to or greater than $218,000 (married filing jointly) or $138,000 (single), then a direct contribution to a Roth IRA may be reduced or prohibited. If you’ve contributed to a Roth in the past, revisit any changes this year that may push your income over the threshold for a direct contribution.

You have until tax day, which is Monday, April 15^th, 2024, to max out your contribution to your IRA or Roth IRA for this year.

Health savings account (HSA):

Traditional, contributions to a health savings account (HSA) are pre-tax if made through payroll deductions. However, if you don’t reach the maximum during the calendar year via payroll deductions, you have until April 15^th to max out your contribution for the prior year. If contributions are made with after-tax dollars, you’ll receive a deduction when you file your income tax return. In addition, withdrawals are not taxed if used for qualifying medical expenses. And don’t forget — HSA account balances roll over from year-to-year, unlike their flexible spending account (FSA) counterpart. For 2023, contributions can be made up to $3,850 for individual coverage and $7,750 for family coverage. For those over 55, an additional $1,000 can be added as a catch-up to these limits.

Overwhelmed? We’re happy to help with your financial year-end to-do list. Give your advisor a call. Let us make sure you tackle any items on the list that apply to your unique situation.