16 Year End Financial Checklist Items
With just a few weeks left in the year, now is a great time to optimize this year’s positioning before we ring in 2025. As such, here are a few suggestions to review.
- Maximize retirement contributions: With the top marginal rate for high earners at 37%, it is important to focus on adjusted gross income and identify “above-the-line” deductions Contributions to a qualified retirement plan, such as a 401(k), 403(b) or HSA plan will reduce adjusted gross income. Furthermore, these plans offer income tax deductions, tax deferred growth of assets, the ability to leave assets to heirs in a tax-deferred or exempt manner and creditor protection.
- Evaluate tax situation now and in the future: Although a Traditional 401k or IRA offer up-front tax deductions and tax deferred growth, it might be wiser to forego the tax deduction and instead opt for the Roth option in which you get tax-exempt growth. Over many decades, tax exempt growth will be significantly appreciated.
- Consider a Roth conversion: Convert funds from a traditional IRA to a Roth IRA to reduce future tax liabilities. Using lower tax brackets allows you to convert funds from a Traditional IRA to a Roth IRA in a strategic and thoughtful manner. In the process, you go from having tax-deferred funds to tax-exempt money. Additionally, a Roth is not subject to future Required Minimum Distributions.
- Review your investment portfolio: Rebalance your portfolio if necessary and consider tax-loss harvesting to offset capital gains. If you realize losses not needed this year, they carry forward indefinitely.
- Evaluate charitable giving: Make charitable contributions before year end to qualify for a tax deduction in 2024. Although gifting cash is nice and simple, other assets deliver greater tax efficiency. If thinking about year-end contributions to charitable causes, consider giving appreciated stock held for more than 12 months instead of cash. You receive a deduction for the full value of the contribution and don’t pay tax on the appreciation.
- Contribute to a Community Foundation or Donor-Advised Fund: Contributions can be written off this year, even if donations are not distributed until subsequent years. This allows funds to grow while you wait for worthy charitable causes.
- Donate via a Qualified Charitable Distribution: If age 70 ½ or older, you can gift up to $105,000 per year directly to charity. Since the money goes directly from your IRA to your favorite charity, there are no taxes owed on the gift delivering maximum impact.
- Bunch your deductions: Although the standard deduction is handsome, consider bunching deductions in one year while itemizing deductions in that same year. And the next year just take the standard deduction. Similarly, you can push or pull income and, or expenses, from one year to the next.
- Check insurance coverage: Review insurance policies, including health, auto, and home insurance, to ensure you have adequate coverage. This is especially important with the increase in home construction costs.
- Update your estate plan: Review your will, trusts, power of attorney, power of healthcare and beneficiary designations to ensure they reflect current wishes. Recognize that beneficiary designations supersede the language in your will. Make sure they complement each other.
- Fund a 529 plan: Contribute to a 529 college savings plan to take advantage of tax benefits and potentially reduce taxable income. Or, gift into a 529 plan for grandchildren, nieces or nephews who need to know that getting more education is not only possible, it is expected.
- Make Tax-Free Gifts: This year, any person can gift up to $18,000 to anyone for any reason. Additionally, you can make unlimited gifts directly to a medical or educational institutional facility for a person without tax implications.
- Review your withholding: Check tax withholding to ensure you’re not overpaying or underpaying taxes throughout the year.
- Consult a tax professional: Call your tax professional to ensure you’re taking advantage of available tax deductions and credits. This time of year is slightly quieter for tax professionals and easier to get on their calendars.
- Set financial goals for 2025: Consider short-term and long-term financial goals, and create a plan to achieve them.
- Order free annual credit report: Review for accuracy and accounts open. Close unnecessary accounts. www.AnnualCreditReport.com