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End of Year Financial Checklist - Consider These 7 Tax Planning Strategies

Before 2022 comes to a close and tax time sneaks up, review these essential tax moves. The strategies in this quick end-of-year financial checklist will help you finish the year strong, maximize year-end tax savings, and ensure you don’t miss something that could cause trouble when you file your tax return.

End of Year Financial Checklist for 2022

Depending on your financial situation, these 7 tax planning strategies could save you money and stress, come tax time. 

1. Take Required Minimum Distributions (RMDs)

RMDs are a critical part of retirement tax planning. If you are 72 or older, you need to take RMDs from certain retirement accounts before Dec. 31st. Failing to do so could cost you a 50% penalty! This includes most IRAs (except Roth IRAs) and 401(k)s. Your annual RMD is calculated by dividing the prior Dec. 31st balance by the life expectancy factor provided by IRS tables.

2. Max Out Your Retirement Contributions 

Making the maximum possible contributions to tax-advantaged retirement accounts like a traditional IRA or 401(k) is a great way to lower your tax liability, even if you don’t plan to itemize your deductions. The limit on employee elective deferrals (for traditional and safe harbor plans) is $20,500 in 2022, according to the IRS

3. Offset Losses with Tax Loss Harvesting

Tax-loss harvesting turns losses into potential tax savings, which could be especially helpful after a tumultuous year in the markets. If you have assets that have lost value and you decide to sell them before 2023, you may be able to use those capital losses to offset taxable capital gains.

You can claim excess losses of up to $3,000 to decrease your ordinary income, such as wages from your job or business earnings. Timing matters here, so making these tax moves before year-end is key if you want to lower your tax bill.

4. Consider Rebalancing your Portfolio for the Year

Market swings can cause investment allocations to shift throughout the year. And your personal and financial goals may have changed as well. Rebalancing your portfolio helps manage risk, combats “drift” away from your target allocations, and ensures your asset allocation is properly diversified. 

Check in with your financial advisor to make sure your portfolio still fits your big picture financial goals and level of risk, and confirm that you’re on track for the retirement of your dreams.

5. Optimize Charitable Giving

Charitable giving is a key part of tax planning strategy for many retirees. In general, you can deduct cash donations to qualified charities worth up to 60% of your adjusted gross income (AGI), which is your total gross income minus certain deductions, such as contributions to retirement plans. 

Donating appreciated long-term investments via a donor-advised fund can be especially tax-efficient: You don't have to recognize the capital gains, and you can receive a tax deduction for the full fair market value of the donation (up to 30% of your AGI).

If you’re not sure how to meet your charitable giving goals this year, a fiduciary advisor can help you with the final details. 

6. Look at the Tax Advantages of Education Savings Plans

There are many popular education savings account options that may offer tax benefits. Learn more about education savings accounts such as a 529 Plan or a Coverdell ESA to help fund education for children or grandchildren. They’re often tax advantaged, but keep in mind they could impact  the recipient’s access to financial aid. 

7. See Whether a Roth Conversion Will Benefit You 

A Roth conversion might make sense if you’re saving for retirement and want to let more of your money grow tax-free. They can help you balance your mix of tax-free, tax-deferred, and taxable accounts to maximize savings. 

Roth conversions are also a great way to save more tax-advantaged money even if your income is too high to contribute directly to a Roth IRA. We explain the pros and cons of Roth IRA conversions here. 

Other End-of Year Tax Planning Strategies to Consider

Depending on your situation, it might also make sense to do any or all of the following:

  • Make a tax-efficient withdrawal from your retirement account if you are over age 59½
  • Take advantage of 2022's gift-giving limit of $16,000 per person ($32,000 if married)
  • If you own a small business, delay receipt of income from 2022 into 2023, or accelerate expenses from 2023 into 2022.

Which of these end-of-year tax moves are you going to make? Understanding your current situation and having a plan will help maximize your year-end tax savings. Use this end of year financial checklist as a guide, while making sure to adjust based on your personal circumstances. 

In general, tax planning is just one piece of a larger financial plan that includes your retirement investment portfolio, an investment process, and estate plan. Each of these puzzle pieces should fit together based on both your current circumstances and financial goals for retirement. 

A fiduciary financial advisor, such as a Certified Financial Planner (CFP®), can help you evaluate this list against your situation to see what makes the most sense for you. Want more ways to use tax planning to your advantage, now and into retirement? Get your free guide, 10 Tax Laws Every Investor Should Know

Download the guide here!

Disclosure: For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based upon third-party data which may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Indices are unmanaged baskets of securities and are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. Total return includes reinvestment of dividends and capital gains. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article. By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements, or representations whatsoever by us regarding third-party websites. Wealth Legacy Institute is not responsible for the content, availability, or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products, or services available on or through these third-party websites. The opinions expressed by featured authors are their own and may not accurately reflect those of Wealth Legacy Institute®.


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