Are You Financially Ready for Year-End?


November 10, 2016


JER WW PHOTOThe transition from one calendar year to the next has important financial ramifications. Is your family prepared? To help you answer that question, here are some of the issues to consider as the weather gets cold and 2016 grows old.

Don’t wait until after the New Year to think about taxes. The return you file in 2017 will reflect what happened in 2016, and your time to impact 2016 is running out. One of the most basic issues to investigate, especially if you or your spouse is self-employed, is whether your paycheck withholding and/or interim tax payments during the year have been sufficient to cover your likely tax bill. If not, you may end up paying a penalty on the shortfall.

This may also be a good time to lower your 2016 tax bill by paying deductible expenses that could otherwise wait until January. Depending on your situation (and whether you itemize deductions) these may include such things as property taxes or qualifying medical expenses. Alternatively, taking action to realize losses in 2016 or defer income until 2017 can have a similar effect. But it’s important to keep in mind that by lowering your 2016 taxes in this way, you may increase them in 2017. And you should always be aware that the Alternative Minimum Tax waits like a snare if you lower your tax bill “too much.” This can especially happen if you have a lot of exemptions, deductions, passive business interests or incentive stock options you have exercised.

The end of the year is also a time to make sure your retirement contributions are where they should be. Remember that in the year you turn 50, you become eligible to make extra “catch-up” contributions of up to $6,000 annually to a 401k ($1,000 to a traditional or Roth IRA, and $3,000 to a “Simple” 401k/IRA).

If you’re retired, make sure you know and are taking the required minimum distribution (RMD) from your IRA/401k by the end of the year or you’ll risk a penalty. This does not apply to Roth IRAs, which do not require distribution until the owner dies. If you find yourself having to take a distribution you don’t need, consider doing it direct to a charity of your choice, as with a Qualified Charitable Distribution.

Speaking of philanthropy, the end of the year should be a season of good will. Why not act that out by donating some securities (that you’ve held more than a year) which have increased in value? The charity will appreciate it, and you’ll avoid the tax hit. Alternatively, if you want to donate an asset that has decreased in value, consider selling it first to get the tax benefit, then giving the proceeds to charity. Not sure of a charity you’d like to give to? Give the money to a donor-advised fund (DAF). You’ll get a tax benefit now, and can choose where the money goes later.

Finally, if you have funds in a flexible spending account (FSA), be aware of whether you must spend that money this year to avoid losing it. Some FSAs offer rollovers or a grace period that extends into the New Year.

With your 2016 finances in order, you’ll be able to enjoy the holidays and look forward to the coming year. Speaking of which, in December we’ll take a look at 2017, and how the tax laws and retirement account regulations may change.

At PARTNERSINWEALTH we bring together all the diverse aspects of your finances so you can make better decisions, break free from worry and live your dreams. If that sounds like something you need, please contact your PERSONALCFO or Jim Waters, CFP®, at 713.964.4028 or