Make Your List & Check It Twice

'Tis the season for hot cocoa, holiday festivities, and getting your financial ducks in a row. Here is Alexis Advisors's year-end checklist to help you plan ahead while looking back on another year passed.

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1. Schedule a meeting with your financial advisor and accountant. The end of the year is a good time for a “financial checkup.” Schedule a meeting with your financial advisor. If you use a tax advisor, consider checking in before December 31 as there may be time-sensitive strategies worth considering.

2. Donate to charity. December 31 is the deadline for charitable contributions you plan to deduct from your 2017 tax return. You can donate cash, or you can donate appreciated securities, such as low-basis stocks or mutual funds, to avoid capital gains taxes. 

If you aren’t certain where you want your charitable contributions to go, contact Molly Dean Bittner at The Community Foundation Serving Richmond and Central Virginia (mdbittner@tcfrichmond.org) to learn more about setting up a donor-advised fund (DAF). A DAF allows you to gift money and get a tax deduction this year, but distribute funds to charities of your choice in the future, while the assets are invested.

3. Max out retirement contributions. Contributions to 401(k), 403(b), and other retirement savings plans are only deductible for 2017 if made by year-end. The 2017 contribution limit for 401(k)s is $18,000, with a catch-up contribution for those 50 and older of $6,000. 

Contributions to both Traditional and Roth IRAs can be made anytime until the tax deadline in April, with a maximum contribution of $5,500 and catch-up contribution for those 50 and older of $1,000. Keep in mind that your income level will determine the tax deductibility of Traditional IRA contributions and the contribution limits for Roth IRAs. If one spouse doesn’t work, funding a spousal IRA may be a way to contribute more. Check with your tax professional if you aren’t sure about the deductibility and contribution limits.

4. Make contributions to college savings plans. Contributions to 529 plans must be made by December 31 to be deductible for the current year. Virginia 529 contributions are state tax deductible up to $4,000, with unlimited deductibility carryforward for contributions in excess of $4,000. Additionally, contributions may be treated as “a gift” by the account owner to the beneficiary, which means that contributions up to $14,000 per year or $28,000 if married and filing jointly are free of gift tax.

5. Check your FSA deadline. If you still have money set aside in an employer Flexible Spending Account (FSA) for health care expenses, check with your Human Resources department regarding the deadline for using these funds. In most instances, companies are now required to offer a grace period after year end. However, it’s important to check the provisions because the grace period does not change the “use-it-or-lose-it” component. Contributions are made pre-tax, and aren’t taxable if applied to qualified medical expenses. 

6. Fund your HSA. A Health Savings Account (HSA) is different than a FSA. While both can be used to pay for healthcare expenses, you can carry over your HSA from year to year, providing another tax-deferred savings vehicle.  Contribution limits are $3,350 for a single person and $6,650 for a family, with a catch up contribution for those 55 or older of $1,000. Contributions must be made by December 31 to be deductible in 2015.

7. Check your beneficiaries. You can check the beneficiaries on your retirement accounts or insurance policies at any time, but it's a good idea to do this at least annually, particularly if you have gone through a significant life event (birth of a child, death of a loved one, divorce, etc.) And remember – beneficiary designations trump what’s in your will, so double checking these is doubly important!

8. Review your will and estate documents. If you have gone through a significant life event during the course of the year, it’s very important to update your estate documents. Otherwise, reviewing these every five years is typically a good rule of thumb.

Here are some additional steps that apply in certain circumstances:

  • Take your required minimum distribution. In the year following the year you reach age 70 ½, you must take the required minimum distribution (RMD) from your Traditional IRA by April 1. The penalty for failing to take your RMD is a 50% tax on what should have been withdrawn. (Clients will receive notification of RMD amounts required over the coming months.)

Note: Legislation is pending regarding the tax deductability of RMDs made directly to a qualified charity. If passed, The Community Foundation would be a great resource for channeling RMDs into an endowed fund that could make grants in perpetuity to your favorite organization(s) – for example, a local non-profit, your church, or your alma mater. If the legislation passes, you would most likely only have a few weeks to make this charitable distribution to meet the December 31 deadline. Congress may extend the deadline, but this too is uncertain.

  • Defer income and accelerate expenses. Income that arrives in 2017 is taxable in 2017, so in some instances, it might make sense to delay income in order to delay the tax bill. The bulk of these strategies are mainly appropriate for small business owners, but it may be worth asking your employer if they are willing to pay your bonus on the first of the year, if such a strategy would assist in your tax planning.

On the other side of the equation, those who want to reduce their current tax liability may want to accelerate tax-deductible expenses (i.e., if your medical costs exceed 10% of your adjusted gross income in a single year) or prepay recurring expenses (i.e., property taxes) before the end of the year.

And bear in mind that the tax reform bill moving through Congress right now may impact the benefit of itemized deductions. 

Roberta Keller

Alexis Advisors is a fee-only firm offering financial planning and investment advisory services. We work with families, women and businesses to integrate their personal and social values with their financial goals. We are one of the few independently owned and operated financial advisory firms, with no dealer group or corporate associations that require us to revenue share or meet sales goals. This means that we have the flexibility to operate with complete transparency, fewer conflicts of interest, and in your best interest.