Year-End Financial Checklist

Looking at your year-end financial checklist now allows you and your financial advisor time to review and assess the progress made on goals set at the start of the year, while still having time before the end of the year to make adjustments if needed.

With this timeline in mind, here are some things to consider before year-end to help ensure your financial plans remain on track.

1.  Postpone income until 2023 and accelerate deductions to 2022

  • Doing so may allow you to claim larger deductions, credits, and other tax breaks in 2022 that are phased out at various levels of adjusted gross income.
  • Postponing income is also advantageous for taxpayers who anticipate being in a lower tax bracket in future years due to changing financial circumstances.
  • Keeping income below $200,000 ($250,000 if married filing jointly) reduces the Net Investment Income (NII) and additional Medicare tax, saving 3.8% on NII and 0.9% in Medicare taxes.
  • Bunching charitable donations increases Schedule A deductions that could otherwise go unused.
      • Consider a Donor Advised Fund, especially in years of higher income or your last couple of working years.
      • Give appreciated securities instead of cash to avoid the capital gains tax.

2.  Capital gain (and loss) considerations

  • If you hold long-term, appreciated capital assets, and are in the lower income tax brackets, consider selling enough to generate long-term gains sheltered at the 0% rate.
  • Be mindful of mutual fund capital gains distribution dates in after-tax accounts.
      • If selling securities before year-end, sell before the record date
      • If adding to your portfolio, postpone purchases until after the record date
  • Take advantage of portfolio losses in after-tax accounts, when possible.
      • Tax loss harvesting offsets gains and distributions in your portfolio
      • You can offset up to $3,000 of ordinary income
      • Be mindful of wash sale rules

3.  Make your retirement plan and HSA contributions

  • Maximize your 401k and other retirement plan contributions prior to year-end. For most, this is $20,500 in 2022 with a $6,500 additional contribution if over age 50.
  • Make your IRA or Roth IRA contributions (be mindful of income and other limitations). The 2022 limit is $6,000 with a $1,000 additional contribution if over age 50.
  • Fully fund your health savings account (HSA), if eligible. The 2022 limit is $3,650 ($7,300 for family plans) with a $1,000 additional contribution permitted if over age 55.

Note: You have until the tax filing deadline (April 15th) to make IRA, Roth IRA and HSA contributions.

4.  Roth conversions and back door Roth contributions

  • Are you in a lower tax bracket this year than in past or future years? Consider creating income by converting funds from your IRA to a Roth IRA while in these lower brackets.
  • Do you make too much to contribute directly to a Roth IRA? If you or your spouse do not have funds in an IRA, consider executing a “back door Roth,” making after-tax contributions to a traditional IRA and converting it to your Roth IRA.  This strategy usually does not make sense if you already have funds in a traditional, SEP, or SIMPLE IRA due to the pro-rata distribution rules. However, you could consider a reverse rollover, moving money from an IRA to an employer-sponsored retirement plan, such as a 401(k) to avoid the pro-rata distribution rules.

Note: In a Roth IRA, all future growth can be distributed tax-free, there are no RMDs from Roth IRAs (until inherited), and they are one of the best assets to give to the next generation.

5.  Required Minimum Distributions and Qualified Charitable Distributions

  • If you are over age 72 or have an inherited IRA or inherited Roth IRA, be sure to distribute the Required Minimum Distribution (RMD) prior to December 31st to avoid significant penalties. If you have not had enough withholding throughout the year, you can use RMDs to make additional withholding and avoid penalties for under-withholding.
  • Do you make charitable contributions throughout the year? Consider sending these directly from your IRA custodian payable to the charity and delivered by you to the charity before December 31st.  This is called a Qualified Charitable Distribution (QCD).
      • You can give up to $100,000 from your IRA each year as long as you are over age 70 ½.
      • The QCD directly reduces the amount of your IRA distribution that is taxable, which in many states also reduces your State taxable income. Using the QCD may be more advantageous than taking the deduction on Schedule A where you must get over the standard deduction and don’t get the benefit of the deduction for state income tax purposes.

6.  Education planning opportunities

  • Consider contributing to a 529 Plan account before year-end. Most states offer a state deduction (or sometimes a credit) up to a certain amount of your contribution.  Think of the tax savings like a company match to your retirement plan.
  • Be sure to reimburse yourself from 529 Plans for qualified education expenses you paid but did not yet distribute as distributions must be made in the year of the expense.

7.  Business planning

  • If you have a small business, you could establish a SEP, SIMPLE, or Solo 401k Plan and make a retirement plan contribution to reduce net taxable income. There is very little administrative burden to these plans, but each comes with specific contribution deadlines, rules, and limits.
  • Like individuals, be mindful of deferring income or accelerating expenses/income. This may be especially important when it comes to the qualified income business (QBI) deduction some business owners may be eligible for.

Note: some professions have no income limit regarding the QBI deduction.  If your profession is classified as a specified services trade or business (SSTB), the ability to claim the deduction may be phased out. For 2022, the deduction is reduced when taxable income exceeds $170,050 for individuals, or $340,100 for married couples filing jointly and is phased out completely when individual income reaches $220,050, or $440,100 for married couples filing jointly.

  • Be mindful of bonus depreciation. The 2022 tax year is the final chance for businesses to take advantage of 100% bonus depreciation under the Tax Cuts and Jobs Act of 2017 (TCJA). The TCJA extended bonus depreciation through 2026 and expanded the benefit to allow for 100% bonus depreciation for long-term assets placed in service after September 27, 2017, and before January 1, 2023. However, this amount begins to phase out in 2023, before expiring entirely in 2027.


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