Just like that, the last quarter of the year is here and with it comes a lot of financial housekeeping tasks that can leave you feeling overwhelmed. Here at FPC, we want to make sure that you are confident and equipped with a strong financial plan to not only get you through the end of the year but also to put your best foot forward in 2020.
We are excited to share a few of our favorite end-of-the-year financial best practices to help keep your finances in check and reach your financial goals. Without further ado, let’s dive into Q4.
Q4 Financial Best Practices
As 2019 wraps up, we want to encourage you to prepare your finances for the end of the year and head into 2020 with a strong plan to help you reach your goals. Below are some items to keep in mind as we move through Q4.
Tax Check-up
The end of the year is an excellent time to take inventory of your tax situation. Many tech employees experience a change in their income and if you experienced a large increase this year, do a tax review to ensure there aren’t any surprises come next spring.
Under the Tax Cuts and Jobs Act, many people experienced a change in their tax refund in 2018 which is why the IRS recommends that people take an extra look at their withholdings to ensure that they are withholding enough money in taxes each paycheck. By paying too little, you could be in for an unexpected tax bill.
Be on the lookout for any additional ways to lower your taxable income and take tax deductions in order to help lower your tax bill whether that be through tax-efficient methods of charitable giving or maxing out your 401(k) as well as IRA contributions and tax-loss harvesting.
Charitable Giving
Charitable giving is an important part of a healthy financial life and we like to help our clients use their dollars to make the biggest impact. Approaching your charitable giving through a strategic tax-efficient lens will not only benefit your wallet, more importantly, but your dollars will also stretch further, optimizing your gift.
While you can simply write a check to the charity of your choice there are other, more tax-friendly approaches. One of those is the use of a Donor Advised Fund or DAF. DAFs are excellent tools for charitable giving as they allow the account owner an immediate tax break to donate funds. The funds remain in the account and grow tax-free until they are donated to a public charity of your choice. You can donate appreciated assets into a DAF, furthering the tax benefits as your gift will avoid capital gains tax. In order for a DAF to work best for you, be sure that you consult a tax advisor. They will be able to give you the professional guidance you need as you navigate this charitable strategy.
Using DAFs for your charitable efforts can help you give more money to the causes and organizations that mean the most to you. Being tax-efficient with charitable giving is less about the tax-benefits and much more about being able to actively support the causes that are important to you.
For retirees over 70 ½, a unique strategy to look into is a qualified charitable distribution or QCD made directly from a traditional IRA custodian to the qualifying public charity of your choice. This strategy allows retirees to donate all or a portion of their required minimum distributions to charity. This strategy reduces overall taxable income and maximizes the donation as the donated funds aren’t subject to taxation.
Open Enrollment
Now is a great time to look at your employee compensation package and select your benefit options for the next year. Open enrollment is a chance for you to make sure you are taking advantage of the opportunities your employer is offering. One of those benefits being a retirement plan. Does your employer offer both a traditional 401(k) and a Roth 401(k)? If so, are you contributing to both accounts?
Remember, your tax withholdings can be customized even for stock compensation elections so take some time to look over your stock options and your tax elections.
Open enrollment also marks the occasion of checking-in on your health-care coverage. Are you happy with your current plan? If you are in a high-deductable plan, are you taking advantage of a tax-efficient health savings account (HSA)? Take some time to look through your plan to make sure your coverage is still what you need.
In a similar vein, evaluate your insurance coverage and ensure that your policy is updated and that you update your beneficiaries as you see fit.
We are so excited for all that Q4 will bring you and can’t wait to help you make it the best one yet.