Still Time for Some Year End Planning Techniques

It’s that time of year where Christmas ads permeate even though we are barely past Halloween and pumpkin spice has just started filling the air and invading many baked goods. As we prepare for the upcoming holidays and look forward to travel, days off, and spending time with friends and family, there is still time to for a few end-of-year financial planning maneuvers. Let’s take a look at a few things that can be completed.

Max out qualified plan contributions. You still have time to visit payroll and arrange to max out your 401(k) plan contributions for 2022, and increase payroll withholding to hit the $20,500 employee limit before year end. If you are over age 50, you can add another $6,500 catch-up contribution to that for a total of $27,000. Most companies these days have online access to allow you to increase your contributions so it’s become easier to do than in years past.

Max out IRA contributions. In total you can contribute up to $6,000 for 2022 to your IRA ($7,000 if age 50 and over). Remember, this is a cumulative total for all IRAs. So, if you have two or more IRAs, your total contributions across all IRAs cannot exceed the annual maximum contribution limit.

Review RMD distributions. If you have an inherited IRA, or you are over age 72, and have begun your Required Minimum Distributions, you need to keep an eye on the calendar. You need to take your RMD by December 31. If you are in the situation of taking RMDs, be sure to do this by December 31 to avoid any costly penalties (50% of the amount you should have taken, plus tax).

Make those charitable contributions by December 31 if you plan to take a tax deduction. Keep in mind that under the 2017 Tax Cut and Jobs Act, making that deduction is more of hurdle for some folks. First, you need to itemize your taxes. Second, you need to exceed the standard deduction ($12,950 for single filers, $25,900 for married filing joint, 2022) for the contribution to be deductible and have an impact. You can, and should, donate to your favorite charity even if you won’t make the deductibility limit. If you are close to these totals, you might want to consider bunching your contributions, or setting up a donor advised fund. The special $300 (Single)/$600 (MFJ) deduction from 2021 is gone as of April 2022 and has not been extended as of this writing.

Tax-loss harvesting. If you have unrealized losses (i.e., you haven’t sold that stock trading for less than you paid), consider selling before December 31 so you can take the loss to offset other gains or write-off $3,000 against ordinary income. Any remaining, unused loss gets carried over to subsequent years. Click for Example.

Fund that HSA. If you have a Health Savings Account, be sure to fund it to the max by April 18, 2023 to claim that deduction. That’s right, you have until tax filing time. Be sure to fund prior to submitting your tax return. The maximum is $3,650 (Single)/$7,300 (MFJ) for 2022.

Use that FSA balance. If you have an FSA balance, use it on qualified purchases and medical procedures by December 31. Some companies allow a carryover of up to $570 or a grace period to spend those funds. Check your plan specifics!

Line up tax preparation now. Whether you are filing on your own, or looking to hire a tax professional, now is the time to start. A little work on your part now will save you a lot of frustration during tax filing season. Start gathering receipts, research tax planning software, gather records such as property taxes paid, and create folders for when these documents start to arrive in 2023. If you need a tax preparer, now is the time to ask friends, family, colleagues, and advisers who they recommend. Get on the preparer’s radar now, before they get overwhelmed.

Set that holiday budget. Decide now what you want to spend. If you made a budget at the beginning of the year, revisit that and make sure it’s still going to work for you. Now is the time to revise if not.

Review your goals. Take a look at what your goals were at the beginning of the year and see if you are on-track to meet them. If not, take some time to assess which goals are really important to you and which you still have time to act on. It’s also a good time to start thinking about next year’s goals as well.

As an independent CERTIFIED FINANCIAL PLANNER™, I can help you work through some of these decisions. Contact me with any questions you have. #talktometuesday #education #Hireaplanner #stressfree #IRA #Roth #401k #savings #retirement #CFPPro #yearend