As the clock runs out each December 31st it is advisable that you prepare your finances with a beneficial year-end review. While I am not a tax-attorney and cannot offer specific advice, below are items that you and your financial advisers may want to evaluate as each year-end approaches.
1) Employee Withholding Tax:
- If your employment or withholding situation has changed over the year, make sure that you’ve paid enough to the federal government to avoid underpayment penalties. Or, make any adjustments for next year.
2) Qualified investment accounts (401(k), IRA, Roth IRA, 529, etc.):
- Complete any annual contributions to (or mandatory withdrawals from) retirement accounts
- Complete any annual contributions to tuition-education plans.
3) Health Expenses:
- If you have met your annual insurance deductible, if possible, get any additional medical procedures before year-end.
- Make use of any remaining money in your flexible health spending accounts.
- Evaluate getting mandatory health insurance or paying the IRS penalty.
4) Donations and Gifts:
- Use your $14,000 annual gift exemption that is tax-free.
- Complete any financial contributions to charities for the year.
- Complete any donations of physical items to charities for the year.
5) Investments:
- Find potential investment capital losses to offset any capital gains that are taxable for the year.
6) Timing of Payments:
- It may be financially beneficial for you to accelerate or defer deductible payments from next year into the current year.
- It may be financially beneficial for you to accelerate or defer income from this year into next year.
- Categories for these item are flexible income sources, unreimbursed employee expenses, medical payments, estimated tax payments, or charitable contributions. Be aware that certain deductions need to pass certain thresholds or are subject to deduction limitations.
7) Affordable Care Act (Obamacare)
- There are very steep cliffs on subsidies for mandated health insurance premiums. A small $50 in your reported taxable income can make a $5,900 increase in your net tax liability. Mapping out the Obamacare subsidy thresholds and your taxable income is critical to analyze now.
8) Washington’s last minute tax changes
- Some of these may apply to you and increase or decrease your tax liability. Be aware of pending items Washington may act upon so you can adjust your planning to take advantage of these changes.
You may have additional issues to evaluate for your particular circumstances, but always address them before the year-end to optimize any tax-consequences for the year.