End-of-Year Planning

If you’re like me, you’re probably thinking how can it be December?  Where did 2022 go?  Before we turn the page to 2023, there could be some actions you could take to improve your financial situation.  The major categories are assets and debts, tax considerations, cash flow and timing, insurance, and estate planning.  I’ll walk through the common things that could apply.  I’ll also encourage you to click on the link and download the PDF (End Of Year Planning Checklist Link) to run through the whole thing.

Assets & Debt Issues

1. Unrealized investment losses in your taxable accounts – Let’s face it…2023 has been a brutal year for investors. Tax loss harvesting is the selling of investments that are now below what you paid for them. This can be used to offset other taxable investment gain.  You can also write off up to $3,000 per year against your income if losses are larger than gains.  This can be a great strategy in down markets.  [There specific rules regarding selling and buying the same or very similar securities called the wash-sale rules.  Make sure you understand this or talk to a financial professional]

2. RMDs – Ensure you are taking any required RMDs. This could be for your own account if you’re 72 or older or you have an inherited IRA.  The IRS recently proposed new rules for inherited IRA distributions based on the 10-year rule in the SECURE act.  This has created some confusion because they aren’t official at this point (11/2022).  Again, consult a financial professional if you’re in this situation.

Tax Planning

1. Income Changes – Are you approaching military retirement? Are you planning to work after?  If so you’re income and tax bracket may increase significantly.  If so, it may make sense to contribute to a Roth IRA or Roth TSP while your income is lower.  Check out this blog post on the Retirement Tax Bomb.  https://nextmissionfinancialplanning.com/tax-time-bomb/Are you approaching your ultimate retirement?  Will your income drop in the future?  If so, that can be a great time to defer taxes by using a Tradition IRA or retirement account.  This can be especially powerful if you’ll have lower income years where you can convert from a Traditional account to a Roth.
2. Charitably inclined?. The standard deduction has increased significantly.  This limits your ability to itemize taxes.  You could consider charitable contribution stacking or bunching.  I posted this example on LinkedIn you could check out if interested. (LINK)

Cash Flow

1. Increasing savings – The maximum salary deferral to an employer plan is 20,500 plus the over 50 catchup of $6,500 for 2022.  You’ve got limited time to make changes for this year, but next year this increases to $22,500 and the catch up goes to $7,500 so if you’re maxing out your contributions know you’ll have to increase your withholdings next year.
2. 529 Accounts – You can use your annual gift exclusion to contribute up to $16,000 to a beneficiary’s account tax free.  This can be a great option for grandparents who want to help out their grandchildren.

Insurance Planning

1. FSA – Make sure you spend any FSA funds or see what your employer has for options.  This might include a partial rollover of funds to next year.
2. Health Insurance Deductible – If you’re over your deductible, consider whether incurring other medical expenses this year makes sense before your deductible resets.

Estate Planning

1. Annual gift exclusion – Gifts up to the annual exclusion amount of $16,000 (per donor, per year, per donor) are tax free.  A couple could gift $32,000 to a child tax free.

College Planning

1. Financial Aid and Taxes – Do you have a high schooler?  It’s important to know what year your tax return will be used for filing the FAFSA.  This can get confusing because school years don’t line up with tax years.  The FAFSA uses taxes filings from the year the student starts their junior year.  Since that’s September, the tax year starts in January of the sophomore year.

The end of year planning checklist (LINK) has other considerations tax bracket thresholds, significant windfalls from stock-based compensation, business expenses, FSAs, etc. that might apply to your specific situation.  Some of these things are complex and nuanced.  This isn’t tax or legal advice so make sure you consult with your tax professional.  If you’d like to discuss your specific situation, I’ve got a few open slots in December.  You can see my calendar here (LINK).  If you can’t find a spot, send me an email and I will try fit you in.