12 Things to Do Before December 31st

Beth Misak |

By Paul Hynes, CFP®
November 2017

This year December 31st falls on a Sunday. If you want to save money on taxes and make the most of some financial opportunities, you must take action before then. 

Here are 12 ideas to help you focus. And don’t delay; that ball will be dropping in Times Square before you blink. Note: This guidance is based on current tax laws, since proposed tax changes have not been enacted as of this writing. These suggestions are subject to change, especially if tax proposals go into effect. Seek guidance from your tax or legal advisor to determine what's best for you and whether changes to tax laws will affect your planning decisions.

1. Contribute the max to your 401(k). Make sure you’ve contributed the most you can afford, up to the statutory limit, currently $18,000, to your 401(k) at work. Some plans allow you to defer any amount of income up to 100%. That means you can make up a lot of ground in a short period of time. (Those over 50 years of age can contribute an additional $6,000.)

2. Harvest capital losses. Taking capital losses this year can help lower your tax bill next year, and possibly for several years to come. Losses can offset gains, dollar for dollar. And, up to $3,000 of losses can offset your ordinary income each year. Two cautions: (1) Be aware of transaction costs, and weigh the costs versus the potential tax savings; and (2) Be aware of the wash-sale rules and make sure you don’t run afoul of these rules.

3. Withhold enough tax. Check to see that your year-to-date income tax withholding is on track to have enough withheld to avoid tax penalties and interest.

4. Take your required distribution. If you’re over age 70½, make sure you’ve taken your required minimum distribution, or RMD, before year-end. The penalty for failing to take the full RMD amount is 50% of the shortfall—in addition to regular taxes. So, it’s really important to get this right.

5. Distribute directly to charity from your IRA. Keep in mind that you can make a contribution to charity directly from your IRA and the contribution amount will qualify as RMD. That can be both good for your finances and good for your soul.

6. Donate to charity. Speaking of charity, any contributions you make to charity before year-end can be deductible against up to 50% of your income. You can make gifts with cash or property, including appreciated investments. Giving investments that have gained in value can be a very efficient way to benefit a charity and avoid capital gains taxes. Also, clean out your home of unwanted items of clothing, furniture, and the like and donate them.

7. Beware of AMT. Some deductible payments, such as property taxes, are ordinarily deductible. Yet the deduction is disallowed if you’re subject to alternative minimum tax, or AMT. If you think you’re going to be subject to AMT this year, you won’t want to pre-pay your property taxes that are due next year. However, if you’re not subject to AMT, you might want to pre-pay your property taxes and get the deduction this year.

8. Convert to ROTH IRA. You may want to consider converting some of your traditional IRA to a ROTH IRA. This move has tax ramifications and should only be done with careful consideration of the consequences. But careful planning now can mean big tax savings later.

9. Bunch medical expenses. Health care insurance deductibles may be a sore subject for some. In spite of your feelings about your deductible, you should know where you stand. If you’ve already hit the deductible amount, you may want to bunch medical expenses into this year. If not, it might make sense to bunch them together next year.

10. Use up your FSA. If you have a flexible spending account, or FSA, make sure you spend the money in the account before year-end. Usually only a limited amount, such as $500, can carry forward to the first part of next year.

11. Make a gift. You can make a gift of up to $14,000 to any person without filing a gift-tax return, $28,000 if the gift is from a couple. And, it is excluded from any gift-tax or other ramifications to your estate. This exclusion expires at year end and will renew again next year.

12. Give to a 529 plan. You may want to make a gift to a child or grandchild by making a contribution to a 529 College Savings Plan. In this case, you can elect to make up to five years’ worth of gifts in one year. That’s a total of $70,000 for an individual, or $140,000 for a couple. There are strings attached, however, so you must be aware of them.

This list may be daunting. And, I haven’t included every detail into this list. The most important thing to do is schedule a review session with your tax advisor before year end, when there’s still time to do something about your current finances. Once the ball drops, it’s too late.

Representatives of HearthStone | Private Wealth Management are unable to provide tax or legal advice, your tax and/or legal adviser should be consulted for such guidance. Data has been obtained from sources believed reliable but cannot be guaranteed accurate. This is intended to serve as general information only and not to be construed as personalized investment advice, nor considered a recommendation or solicitation to buy or sell any securities or investment products or strategies. Investment values fluctuate based on market prices and may be more or less than the amount originally invested.