Never Too Early for Year-End Assessments

“The key is to keep company only with people who uplift you, whose presence calls forth your best.”

 ~ Epictetus, Greek philosopher

Question:  Now that summer is officially over and year-end is right around the corner, what suggestions do you have for potential financial planning strategies to consider prior to year-end?

Answer:  You’re right, now is the time to start thinking about taking advantage of tax-deferred growth opportunities, tax-advantaged investments, and charitable giving opportunities, among other strategies as well as maximizing deductions and credits ahead of tax season may be beneficial.

As you consider these year-end options, it’s a good time to sit down with your trusted financial advisor to review your investments considering your goals, the tax environment, and the economic landscape. The conversation can help identify where adjustments may be needed to best position yourself for next year and beyond.

To prepare for these discussions you can start by gathering information on your sources of income, both earned and passive income. Next, identify any gains and/or losses on investments and determine if they are short-term or long-term based on the length of time you’ve held them. Additional forms of income may include social security, interest, and dividends.

This is also the chance to review investment holdings and see if there is a need to rebalance your asset allocation between cash, fixed income, and equities (stocks) to align with your investment objectives. If appropriate, you may be able to harvest tax losses to offset gains. Other considerations include the funding of retirement and health savings plans if you have earned income, and to find out if you’ll be subject to the alternative minimum tax (AMT). 

This could be the time to contemplate converting all or a portion of your traditional Individual Retirement Account (IRA) to a ROTH IRA. Feel free to contact us for details on this concept. Another area you may wish to deliberate is whether municipal bonds for tax-exempt income could be beneficial. Interest earned on tax-free municipal bonds is generally exempt from state tax if the bond was issued in the state in which you reside, as well as from federal income tax (though earnings on certain private activity bonds may be subject to regular federal income tax or to the alternative minimum tax). But if purchased as part of a tax-exempt municipal money market or bond mutual fund, any capital gains earned by the fund are subject to tax, just as any capital gains from selling an individual bond are generally taxable.

If you plan on making charitable contributions this year, review your planning strategies with your team of financial professionals before making those gifts to ensure that you’re maximizing the benefit to you and the charitable organization. Incorporating highly appreciated assets into your giving strategy may be beneficial and the optimum way to fulfill philanthropic wishes. 

If you’re gifting to family members, this matter should be reviewed with your financial team as well in conjunction with your estate planning discussion. Given potential legislative changes in this area it may be helpful to review with your attorney to make sure language in your documents is flexible. If you’re interested in helping family with educational or health care expenses, this should be discussed too as there are techniques you may not be aware of utilizing.

As we prepare for the start of the fourth quarter of the year, now is the time to review and possibly take advantage of tax-deferred growth opportunities, tax-advantaged investments, and charitable giving opportunities, among other strategies. You’ll also want to maximize deductions and credits ahead of tax season.

As you consider these year-end options, sit down with your advisor to review your investments considering your goals, the tax environment, and the economic landscape. The conversation can help identify where adjustments need to be made to position yourself for next year and beyond. The list of dates and documents is designed to keep you on track throughout the upcoming tax season. Stay focused and plan accordingly.

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