The end of the year is full of holiday cheer and the excitement of a fresh start, but don’t look forward too quickly. There are several financial steps you should take before 12/31 so we have created a year end tax planning checklist. Rounding off your year with a few strategic moves puts you in a great position for the new year.
Set up a retirement plan.
One of the best investments you can make is contributing to your retirement plan. It saves on taxes and saves money for retirement. It’s a no-brainer. Make sure you get the account set up before year-end. You still have until 4/15 of the new year to contribute. If you own a small business, consider setting up an individual 401(k) or Simplified Employee Pension (SEP) plan before year end. If you set up a SEP, you have until 4/15 to do so.
Recognize losses on investments.
It’s not your favorite piece of advice, and not our favorite to give but this was not a great investment year for many. You may have losses, especially if you just contributed assets. You get $3,000 per year of loss recognition. Don’t miss out.
Recognize capital gains.
If this is a low income tax year for you, consider recognizing capital gains. The tax rate on long term capital gains increases as your income does. If your lower income bumped you down to a lower tax bracket, you might be able to recognize a lower tax rate. See the tax tables here.
Max out company retirement plans.
Don’t miss out on the opportunity to max out your employer matching and contributions to your retirement plan before year end.
Convert to a Roth IRA.
You should consider converting to a Roth IRA if this is a low income tax year for you. In a Roth IRA you pay taxes on all contributions but all withdrawals are tax free. If you are in a lower than usual tax bracket this year, the tax rate will likely be lower than when you are ready to withdrawal. You can reconvert by 10/15 if the market goes down.
Rebalance your portfolio.
Hopefully you are doing this quarterly, and the end of the year is no exception. Rebalancing your portfolio helps make sure your asset allocation is on track.
If you have had any significant life changes this year, it’s a good idea to review your beneficiaries on your various accounts. These could include investment accounts, insurances, and trusts.
Set a resolution to plan.
The best thing you can do for your financial future is plan. Set a resolution this year to create a financial plan, implement a plan you already created, or revisit and make sure your current plan is on track. Your goals are fluid, and making sure your plan is still aligned with them is key.
Find an Advisor
Find an advisor you can trust before year end so that you go in to the new year supported, with a plan in place. Have an initial consulting meeting to make sure he or she is a good fit. Consider all of your needs. Do you need tax planning as well as investment services? Find someone who does both.