We have almost made it — 2020 will soon be in the books! And 2020, we don’t mind if the door hits you on the way out. Even though some of us are racing and limping toward the new year, taking some time to go through an end of year checklist will help make 2021 a little less … interesting.

While everyone is busy with holiday preparations, the end of the year is a fantastic time to check in with your financial planner to look for possible tax bills and make informed tax plans. Unfortunately, even with only W-2 income from a regular paycheck, people can still be caught off guard by an unexpected tax bill or penalty. Part of tax planning can include “tax harvesting,” which sells investments (at either a gain or a loss) to offset your tax burden. Losses can be deducted against ordinary income up to $3000 and can be used to offset gains of any amount. Another way of thinking about tax harvesting is a strategy of selling taxable investment assets (stocks, bonds, mutual funds, etc.) at a loss, which can then be applied to capital gains in other sections of your portfolio. Overall, this will reduce the capital gains tax owed. This check of your assets is also a great time to rebalance your portfolio. Rebalancing your portfolio can assess that you have taxable bonds in your retirement accounts, and investments that generate less tax (like stocks) are in non-retirement accounts. Checking with your financial planner and accountant now can save possible headaches on tax day.

We know, we know, credit cards are flying this time of year with holiday purchases. But December can be an excellent time to work on avoiding consumer debt and re-evaluating negative money habits that may have slipped into your lifestyle. By working to avoid consumer debt, you will then be able to move towards accumulating savings that could be crucial in upcoming life events. There are fantastic online and computer programs to help track spending and organize receipts. By making a list of all revolving debt balances you carry, you will be able to work on paying debt down with “snowball” debt payoff systems. Once you have a handle on your consumer debt as well as eliminating unnecessary expenses, you can now move towards building your reserves. While it can seem daunting at first, working towards having one to two years of living expenses set aside can be a game-changer for you and your loved ones. Not only will savings bring peace of mind, but it will provide a reliable financial safety net. There is no better holiday gift than peace of mind.

Once reserves have accumulated, several items can be added to your end of year checklist to make sure that you are on the right footing for the long-term financial goals you have in place. December is a great time to see if you are fully funding an IRA or even setting aside funding for next year’s IRA contribution. Assessing your insurance coverage should also be added to your checklist to confirm you have sufficient life, health, disability, long-term care, homeowners, and personal property insurance. During this review, you can check if your life insurance beneficiaries are up to date. Setting up and contributing to an FSA (Flexible Spending Account) will set aside your pre-tax monies for medical expenses and lower your taxable income.

Check into refinancing student loans and mortgages. Will low rates help to offset closing costs? Will a lower interest rate help you pay down debts more quickly? Ending the year by checking into your retirement can also be beneficial. Think about changing contribution amounts or possibly adding any bonuses received to your plan. It can also be a strategic time to convert traditional IRA funds to a Roth IRA so that all future gains and qualified withdrawals can be tax-free (you will pay taxes on the amount you convert). Also, make sure you’re taking any Required Minimum Distributions (RMD’s) from traditional retirement accounts if you’re age 72 or older.

The end of the year can also be a great time to consider estate planning and possible charitable contributions. Gifts can be up to $15,000 per individual recipient per year. And if you are in a position to donate, making a Qualified Charitable Distribution (QCD) to a nonprofit or public charity will help to decrease your taxable income.

Phew. We get it; finances can be tough. But with all these options, taking the time to go through an end-of-year checklist can get you on the right footing for the coming year. Whether it be debt management, charitable giving options, or retirement questions, working through financial issues in December will give you peace of mind while ringing in the new year.

Key Takeaways

1. Going through an end-of-year financial checklist will help prepare you for 2021

2. Consider tax harvesting and checking tax liabilities now to avoid surprises when taxes are due

3. Avoid consumer debt and pay down any balances. Work towards a one to two-year financial reserve

4. Consider IRA contributions, insurance coverage, and FSA contributions to further protect against unexpected financial problems

5. Check into mortgage or student loan refinancing

6. Look into estate planning gifts and charitable contribution options.

Justin Martin is a Senior Wealth Advisor for Legacy Wealth Management, with his office based in the Salt Lake City area. Justin works with small business owners and doctors throughout the United States and is passionate about helping individuals prepare for a robust financial future. Justin completed his Master of Business Administration (MBA) at Texas A&M University and completed his undergraduate studies at Brigham Young University. Justin is FINRA series 65 licensed, has been working as a Wealth Advisor since 2006, and is currently a board member with the International Association of Registered Financial Consultants. He also works as an adjunct professor of microeconomics and loves studying financial systems. Justin and his wife Megan have four kids and love all things active and musical.

This document is provided for educational purposes only. All investment strategies have the potential for profit or loss. No investment strategy can guarantee positive returns. The information contained in this document should neither be construed as a provision of personalized investment advice nor as a guarantee that a certain level of results will be achieved. Under no circumstances should this information be construed as an offer to sell or a solicitation of an offer to buy any particular service or product.

Source: Justin Martin