Year End Financial Planning Checklist

The follow are some tips to maximize your financial situation.

I know there isn’t much time left, but here are a few things you may want to take care of before 2018.

1. Take your Required Minimum Distributions (RMD)

Except for your Roth IRA, most other retirement accounts (such as traditional and inherited IRAs) require you to take a Required Minimum Distributions (RMD) by December 31 if you’re 70 1/2 or older. The penalty is 50% of the RMD amount.

If you turned 70 1/2 in 2017, you have until April 1, 2018 to take your first RMD. April 1st of the year after you turn 70 and 1/2 is called your Required Beginning Date. However, delaying your RMD to 2018 will mean that you have two distributions in the same year and could put you in a higher tax bracket.

Those 70 1/2 or older, you can donate all or a portion of their RMDs to charity. This contribution will not be counted as income on your tax return – unlike a typical RMD.

2. Maximize Itemized Deductions in 2017

With the changing tax law, the standard deduction is increasing and 2017 may be the last year to itemize deductions.

For 2017, the standard deduction is $6,350 for single filers and $12,700 for joint filers plus you get a personal exemption on top of that of $4,050 per person. You compare your itemized deductions with the standard deduction and take the larger.

In 2017, you get to add up your: mortgage interest and points, state taxes, property taxes, vehicle registration, charitable cash and non-cash contributions, financial and non-reimbursed business expenses (above 2% of your adjusted gross income) and medical expenses (above 10% of your adjusted gross income).

For 2018 and beyond, the personal exemption goes away and the standard deduction is increased to $12,000 for single filers and $24,000 for joint filers. The deductions that you can itemize are limited to: mortgage interest (to a limit), state and local taxes (up to $10,000) and charitable contributions.

You will not be able to itemize as much in 2018 and the standard deduction is much higher – so the chances of having itemizing deductions greater than the standard deduction are much less.

Therefore, for 2017, as much as possible maximize your itemized deductions, because many of us will not get any tax credit for these after 2017.

  • Make charitable contributions in 2017. The best ways to make these donations is with shares of appreciated stocks, mutual funds, or ETFs.
  • Make in-kind (give stuff) in 2017.
  • In Arizona, make your Arizona state credit contributions in 2017. Max them out, if you can – you have 5 years to use them up.
  • Pay your 2nd half property taxes in advance, if they are not paid through an escrow company
  • Pay your January mortgage payment in December
  • If you get a medical deduction (more than 10% of your AGI in medical expenses) do more in 2017 – pay for glasses, contacts, hearing aids, dentist, …

3. Plan to Make Retirement Account Contributions

Group 401(k) contributions must be made before December 31. Individual 401(k) and IRA contribution due date is not until April 17, 2018. If you need to adjust your 401(k) contributions, contact your HR department and change your withholding on any year end bonuses or paychecks.

4. Reduce Capital Gains Taxes

You can reduce capital gains from mutual fund and ETF distributions by selling funds with losses by December 31. If your net losses exceed your gains, an additional $3,000 can be taken from ordinary income. Losses above $3,000 are carried forward to future tax years.

5. Plan to Contribute to Your Health Savings Account (HSA)

You have until your tax filing due date each year to fund an HSA for the prior year. A high-deductible health insurance plan allows you to contribute $3,400 for an individual and $6,750 for families before taxes. Those 55 and older can contribute an extra $1,000 annually as well.

6. Spend Flex Savings Account Money

Employer sponsored Flexible Spending Accounts (unlike HSAs) need to be used up by the end of each year or the money is forfeited. Not all plans follow the calendar year, so contact your employer for your deadline.

7. Contribute To Your 529 Education Plan

529 Plan contributions are eligibility for federal gift tax exclusion and some state income tax benefits. You need to make contributions to your college savings plan by December 31.

8. Roth Conversions

If you are considering converting part of your traditional IRA to a Roth IRA make sure to do so by the end of the year. There are trade offs to doing so – it will increase your tax liability in the year you convert but may provide a substantial long term benefit.

Be careful with your calculations on how much to convert to a Roth IRA. We recommend trying to push your income up to the next tax bracket margin as close as possible, but not if it’s too high already.

9. Adjust Withholdings

It’s not too late (or too early) to make adjustments to your paycheck withholdings if they’ve seemed a little high or low throughout the year. While you never want to overpay but if you underpay too much you may be subject to penalties.

Double check your withholding, and even consider making an estimated tax payment if you somehow earned more than you expected this year.

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