Expert Tips for Year End Finances

Certified Financial Planners help you manage and save

Take a look at your income for the year and make sure that you have adequately withheld for income taxes. If you’ve changed jobs mid-year or had unexpected income, your tax withholding may not have been sufficient. This will help prevent any unpleasant surprises when it comes time to file your tax return. Did you receive a gift or inheritance this year?  Good news: This is generally not included in your taxable income! However, if you inherited an IRA or a 401(k) (and in some cases, an annuity) and were required to make a withdrawal, that would generally be included in your taxable income. Be sure to consult your tax professional regarding your individual situation.

Most of us tend to think of a budget in terms of monthly expenses, and we forget to factor in those annual items such as holiday spending, special occasions, insurance premiums, back-to-school expenses, vacations, auto maintenance and repairs. I recommend taking some time at the end of the year to review your actual spending and then use that as a template for next year’s budget. Calculate what you'll need for the year, divide by 12 and transfer that amount into a savings account each month. 

Contributions/Charitable Donations
Charitable contributions are a great way to give back while saving on taxes at the same time. These donations are typically deductible if you are itemizing your deductions for the year. With the change in tax law, consider “bunching” your charitable donations into one calendar year to maximize the deductibility. For example, instead of making a charitable donation each year in December, it might be better to make a donation in January and December every other year to put two deductions into one calendar year. Be sure to consult your tax professional regarding your individual situation. One way to reduce your taxable income is to make sure you’re maximizing your 401(k) and IRA contributions. Every dollar you contribute to your retirement plan(s) removes a dollar from your taxable income. For 2019, you can contribute a maximum of $19,000 to your 401(k) ($25,000 if you’re over 50) and a maximum of $6,000 to your IRA ($7,000 if you’re over age 50). Not only that, but these retirement accounts grow tax-deferred as well! 

Insurance Planning
The end of the year is a great time to make sure that your insurance policies are properly protecting you and that all of the beneficiary designations are up to date. Have you gone through any life-changing events this year such as marriage, birth of a child, divorce or death? If so, your insurance needs have likely changed. Consult with your financial adviser to ensure you’re adequately covered. You also want to make sure that you’ve updated the beneficiary designations on your insurance policies and retirement accounts.

Items Best Purchased at the End of the Year
For business owners, the end of the year is a great time to make those deductible purchases for the business, assuming that they are needed. Review the embedded gains and losses in your portfolio and consider doing some tax loss/gain harvesting. For example, if you’re in a low tax bracket for the year, it might make sense to sell some appreciated stock or mutual funds to realize that gain in a low-income year rather than a future higher-income year. Be sure to consult your financial adviser and tax professional regarding your individual situation.

Answers provided by Lauren Robbins, CFP®,  from Hawekotte Financial Group. Securities offered through Commonwealth Financial Network®, Member FINRA/SIPC.  

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