End of the year cleanup

The end of the year is quickly approaching, but there is still plenty of time for financial “cleanup”. Here are a few things you can do to better positions yourself for 2023 and beyond.

Review your cashflow and how it panned out for 2022

This will probably be eye opening for most as we all saw price increases climb to a 40 year high. However, look over you’re spending and savings for the year to see if you reached your goals.

If you were unable to save as much as you wanted, then look into automating your savings or creating a monthly budget. Doing some of these things can help set your up to reach you savings goals in future years.

I have also written this year about the strategy of Dollar Cost Averaging into your investments. You can read more about that here:

Review your investments

This has been a tough year for both equity and bond investors. Unprecedented rate hikes and inflation have pressured both and led to negative returns. However, times like this give us an opportunity to take a step back and assess. Ask yourself the following when reviewing your accounts:

  1. Are my investments suited to my individual goals?
  2. Am I comfortable with the risk I am currently taking?

If you answered no to either of these questions, then it may make sense to make some changes. Working with a financial planner can help you build an allocation properly suited to your individual situation.

I wrote a blog this year discussing what your overall risk profile looks like and how it should be used in constructing a portfolio. You can read that here:

Tax Loss Harvest

I have written about this subject in depth this whole year as a bear market gives us an opportunity to improve our tax situation by realizing losses. These losses can be applied to your taxes for 2022 (up to $3,000) and excess can be carried forward into future years.

Gift to Charity

If you are a philanthropic person, who also wouldn’t mind a tax deduction, then here are a few strategies that can accomplish both:

  1. Donate Appreciated Stock

This strategy can be great for people that have low-cost basis and want to avoid paying capital gains taxes.

Donating appreciated stock may be a financially effective way to satisfy your philanthropic endeavors. However, everyone’s situation is different so always discuss your plans with both your advisor and your tax preparer before moving forward.

  1. Qualified Charitable Donations (QCDs)

A QCD is a simple as applying your Required Minimum Distribution to a charitable gift. The donation comes directly from the IRA and can include all or a portion of the RMDs.  By donating directly out of the IRA, the RMDs is no longer included as adjusted gross income (AGI) on a tax report.   By reducing the total amount of taxable income, QCDs can provide additional tax benefits when compared to a standard cash donation.  QCDs are not an annual tax deduction, but rather a way for the RMDs to be excluded from taxable income.

You can read more about charitable gifting strategies here:

Estate Planning

It is also a good time to review your estate plan. Double check your beneficiaries to make sure the correct ones are on retirement accounts. If you don’t have a current will or power of attorneys, then now is a good time to consider updating those.

If you are planning on gifting the limit for 2022 is $16,000 ($32,000 for married couples) per beneficiary. Any amount gifted beyond that will count towards your lifetime exclusion and a gift tax form will need to be filed for 2022.

You can read about some common estate planning mistakes here:

Consider a Roth Conversion or Back door Roth

Check with both your advisor and tax preparer to see if these strategies make sense for you. A Roth conversion in plain terms is to covert qualified money in a traditional IRA to a Roth IRA. You can learn more about when a good time to convert by watching a video I recorded this year:

Engage in Financial Planning

If you have not engaged with a financial planning professional now may be a great time to start. Working with a CFP® Professional can help you address all of these areas I covered in one cohesive forward-looking plan.

If you would like to schedule a 15-minute call to go over the planning process, you can use my calendar HERE.

Cheers to a great start to 2023 and beyond!




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