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Year-End Financial To-Dos Thumbnail

Year-End Financial To-Dos

No one needs extra things to do in the busy holiday season. But even in a pandemic year, there are a few financial to-do items that need to be completed by the December 31 deadline. Take care of them sooner than later, and clear your mind to reduce stress and enjoy the season!

Some are more logistical, while others are more about planning to turn your goals into reality. We hope these steps will help give you the push you need toward a great New Year and a bright financial future!

Financial Year-End To-Dos

1. Identify what is truly important to you.

Whether it’s family, new experiences, or a feeling of security, think about what motivates you. Always be aware of this and don’t  stray in a direction that leads you farther away from these core values.

3. Take stock of the year.

After a rollercoaster pandemic year, you may find yourself comparing 2020 to 2008. How does your financial position compare to the last financial crisis? What did you do differently this time around, if anything, and how did it work out? 

This year, many investors gained a better understanding of their cash flow. Whether it was a necessary “tightening of the belt” due to reduced income, or a surplus in monthly cash on hand because there was less opportunity to spend it, 2020 was an eye-opener. Maybe you found you didn’t miss going to a particular store, or using a particular subscription. It’s a good idea to review your spending and try to remove these inefficiencies in good years and bad.

Investors also got a real-life test of whether their portfolio allocation suited their risk tolerance. It’s unwise to make drastic long-term changes in reaction to short-term market fluctuations, but it is worth thinking about whether your investment objective is still in line with your goals.

One simple way to compare progress from year to year is to look at your net worth (your assets minus your liabilities or debts) once all of your final statements for the year come in. Is your spending bringing you closer or farther away from what you find truly important in life? Have you made progress to shrink debts and increase assets, or do you need to make changes for next year? Be honest with yourself about what is really within your control (ie. saving, spending) versus what is not within your control (market performance, other people’ actions).

2. Meet your deadlines.

Talk to your CPA before the busy tax season. Your CPA can help you to determine if you have paid enough in state and federal taxes for the year. It’s a good idea to check in so you have time to make any changes needed before the new tax year begins, and ensure you won’t face an unpleasant surprise at tax time.

Adjust your contributions to max out your retirement contributions. Are you maxing out your contributions to get the most out of your tax-deferred accounts? If you have the capacity, remember to increase your contributions to the maximum for 2020 and 2021.

Complete charitable giving by December 31: If you would like your charitable giving to be considered tax-deductible for this tax year, you must make a gift to a 501(c)3 charitable organization before December 31. There are several other factors to keep in mind to make the most of your tax-deductible gift, including keeping track of receipts and value. You may even want to establish a structure like a donor-advised fund. This allows

Contribute to your 529 Plan if saving for college: In order to get any available 529 Plan tax incentives for your state, you must fund 529 plans before year-end.

Make sure 529 Plan reimbursements occur in the year of the withdrawal. There is another year-end task for 529 Plans if your child is in college and you are making withdrawals from the plan. Withdrawals for reimbursement from your 529 account must match up with payment of qualifying expenses in the same calendar year. This can be confusing, especially for the spring semester, when you might receive the bill in December, but the expenses technically occur starting in January of the next year. You must make sure that any qualified expenses paid in a particular calendar year are reimbursed in that same calendar year.  For example, if you pay spring tuition in December, then you must request a reimbursement from the 529 plan in December. Remember to keep records of these expenses for your accountant and personal tax records.

Small business retirement plan: Creating a pre-tax retirement plan has dual benefits: it may reduce your tax liability as a business and it gives the benefit of tax-deferred investment growth for you and your employees. You have a few options, and two of them would require your attention before the end of the year.

  • Solo 401(k): A plan for sole proprietors and very small businesses. A solo 401(k) must be created by December 31, but you have until April 15 of the following year to fund the plan.
  • SEP IRA: A plan where employers make all contributions at a set percentage, but there is no minimum required contribution. This offers some flexibility if there is a year with cash flow issues, but it may be expensive if you have multiple employees. You have until your tax filing deadline to fund the SEP IRA, but start to plan for this spending now.

4. Automate and simplify.

Once you’ve identified where you might need to make changes, break it down into achievable steps—and make those changes as easy for yourself as possible. For example, we always recommend automating savings and billpay. It takes just a few minutes and can save a lot of hassle! We actually have an entire blog post dedicated to automating your finances to the extent possible.

5. Just Do It!

By this point you probably have some ideas about long-term adjustments, as well as some short-term to-dos. Hopefully you feel motivated and energized by your core values. But those adjustments you’re thinking of won’t happen without a concrete plan and the motivation to carry it through. At Halpern Financial we can help you to craft and achieve your financial plan for the rest of this year and onward.