5 Money Moves to Make Before the New Year

There’s been a lot of talk lately about what awaits us in 2024 — a recession? More or less inflation? A hold on interest rates? A tax increase? A new president? There’s a lot of uncertainty right now, especially because the tax rate is relatively low right now; the highest tax bracket is at 37%, whereas just a few years ago it was 39.6%. As we head into a presidential election year, I don’t believe it would make sense for the current government to increase taxes in 2024, and I don’t foresee any major tax law changes occurring.

That said, I have no crystal ball. I can’t predict the future any more than you can, but I do know that there are still a few ways you can gain some control over your finances before the new year begins.

Here’s my 5-item, year-end essential financial checklist:

  • Harvest your tax losses.

At this point in the year, it’s probably too late to sell investment properties or defer income to reduce your modified adjusted gross income (MAGI). But something you can do is capitalize on potential losses that could reduce your tax burden. This is what’s called tax-loss harvesting.

Basically, this is where you sell an investment — usually a stock or bond — that is declining in value and use that capital loss to offset any capital gains you may have generated. The rules around this are quite technical and depend on whether the loss is short-term (asset held for less than one year) or long-term (held for at least a year). The good thing, however, is that tax losses can be carried forward indefinitely and can offset taxes on up to $3,000 of ordinary income every year. Of course, certain risks are involved, so be sure to check with one of our tax experts to discuss your options.

  • Max out your retirement contributions.

Have you contributed as much as you’re allowed by the IRS to your retirement accounts in 2023? If not, and you can at all afford it, now’s the time, especially if your retirement account is a 401(k) for which your employer matches a portion of your contributions — don’t leave that free money on the table if you can help it. You can contribute up to $22,500 for 2023 if you’re aged 49 or younger; for those 50 and up, you can contribute up to $30,000.

If you have a 401(k) or traditional IRA, maximizing your retirement contributions reduces your taxable income for the year.

  • Switch to a Roth IRA.

Speaking of retirement, if you’re currently storing your retirement dough in a traditional IRA, you’re on the hook for mandatory withdrawals (RMD). If you want to take money out when you want it, and not a minute sooner, consider doing a Roth IRA conversion. The other, bigger benefit is that money you put into a Roth IRA is fully taxed, meaning you’ve already paid your taxes on that income — so you won’t owe any when you take it out later. Meanwhile, contributions to a traditional IRA are pre-tax, meaning you’ll owe taxes when you take the money out. Convert before the end of the year to reduce the value of your traditional IRA and begin capitalizing on a Roth’s many benefits.

  • Give your gifts now.

The holiday season is the perfect time to take advantage of this little tax trick. You can give a financial gift of up to $17,000, or pay someone’s medical or education expenses up to this amount, without it counting toward your lifetime exemption for gifts. This means that a financial gift up to this amount (but not over) is excluded by the IRS from the requirement to file a gift tax return.

If you send checks to your family members and friends as year-end gifts, make sure that you mail them early enough to clear the bank before January 1st of 2024. A married couple is allowed to make up to a $34,000 gift to one individual without affecting the lifetime exemption for gifts, however a gift tax return needs to be filed.

  • Consider charitable giving.

Ever since the tax law changed to emphasize the standard deduction over itemized deductions, there has rarely been a tax benefit to charitable giving. However, if your giving exceeds the standard deduction, you can benefit. This is why many donors do what’s called bunching, in which you concentrate multiple years’ worth of donations into a single year. You can do this by opening a donor-advised fund, in which you can spread out your donations over multiple years, but you can still take the charitable deduction for 2023.

For taxpayers who are at least 70.5 years of age, one smart financial strategy is to replace your regularly required minimum distributions with a qualified charitable distribution of up to $100,000 (per individual). While that donation is not tax-deductible, it does lessen your tax burden because it lowers your annual income.

More Smart Money Actions You Can Take

While it’s still December, there are a few other actions I’d recommend in order to get some control over your finances:

  • Review your annual statement from the Social Security Administration for any income showing that isn’t yours or other erroneous information, as these could be an indication of fraud.
  • If you’re receiving federal disability benefits, check to be sure you’re still eligible; if you haven’t worked for five of the last 10 years, you could lose these benefits, and they’re difficult and expensive to get back.
  • Review your designated beneficiaries on accounts and insurance policies to be sure all information is correct and current. Trust me, I’ve seen what can happen when these are not updated, and it can wreak havoc on a family.
  • Check your credit report. Every American is entitled to a free credit report from each of the big three credit-reporting agencies (Equifax, Experian, and TransUnion) each year. Getting hold of all three of them can, admittedly, be trickier than it should be, but even getting two of them should give you a good picture of your credit rating. Review it to be sure that nothing looks amiss. Be sure that any late payments are correct or amended and nothing is a surprise. Anything that doesn’t look right is likely to be a simple reporting error, but it could also be an indication of fraud, so go over it carefully and take steps to make necessary corrections. The result could be an improved credit score, so it’s worth your time.
  • Speaking of fraud, credit card fraud is at an all-time high. Be sure you look at all bank and credit card account statements regularly and sign up for any bank alerts on any large transactions. It’s better to have your bank question legitimate transactions than to let questionable ones through.

If you’re ready to make improvements to your financial picture but don’t know where to start, give us a call! In the meantime, happy holidays, and a very sound new year!