I’m in full Santa-mode. Believe it or not, I’m still making a list and checking it twice. Thankfully, I’m not talking about my last minute shopping. Instead, I’m reviewing my year-end financial tasks for my clients. Here’s some of what’s on my mind. It might prompt you to review your own list.
Tax Loss Harvesting: If you have realized capital gains this year and want to offset them, scour your portfolio for some losing investments to sell. For those who own mutual funds, look for December capital gain distributions that might have gone unnoticed. If you have an advisor, just ask them if some tax loss harvesting is right for you.
Roth Conversions: As a refresher, a Roth conversion is when you shift money out of your regular, tax-deferred IRA and put it into a forever, tax-free Roth IRA. You’ll want to consider a Roth conversion when you determine the resulting tax bill now will be lower than future projections. Obviously, figuring this out takes some analysis, but there’s still a little time before the end of the year.
College Savings: In Michigan, you get a state income tax deduction for the contributions you contribute to a college savings plan (known as 529 Plans.) If you don’t pay state income taxes (and many retirees don’t), you might consider gifting the money to your kids to help them save for their own children. Naturally, December 31st is the deadline for this tax year.
Property Taxes: This is not a real December 31st deadline, for most readers. If you don’t itemize your deductions, your property taxes aren’t going to show up on your tax return anyway. But, if you do happen to itemize or if you own a rental property, you should talk to your advisors to see if prepaying your property tax bill is a good tax planning move.
Contributions to IRAs or HSAs: Here’s some relief, you don’t have to worry about December 31st when it comes to making your IRA contributions or funding your health savings account. April 15th is your true deadline for these types of contributions.
Required Minimum Distributions: This is a very real December 31st deadline! Remember, required minimum distributions (RMDs) apply for anyone with an IRA who has reached age 73 or has inherited an IRA from someone else. Of course, the RMD rules for inherited IRA is more complex and is worthy of some tax planning.
IRA Charitable Donations: This one is really, really important. Charitable donations made directly from your IRA need to be completed by the end of the year. These charitable donations will count toward your required minimum distributions (RMD) from your IRA. But, not if a donation check is just sitting uncashed, it won’t count.