Holidays are drawing close, and many of us may have started doing some house cleaning. Here, I’d like to invite you to do some year-end financial housekeeping as well.
Below are some ideas as to what might be helpful to consider at this time of the year, with key focuses centered on tax-planning (you may have realized what a tax-nerd I am by now 😅) -
- Update your household financial statements. Just like running a good business, two financial statements are of utmost importance for each household - income statement and balance sheet. Year-end is a great time to update them both.
- Income statement takes in all your income, and expenses for the period you are working on, say, since January 1, 2024. Add all your income, and if that’s higher than all your expenses, congratulate yourself! Save that surplus and invest properly, your future self will thank you for that!
- Balance sheet is a snapshot of where you are financially. Check all of your account statements for assets and liabilities, and see where you are. Take your debts out of your assets to get your net worth (like we talked about last time). I hope you see a higher net worth than it was last time you calculated it. And while you are at it, set a new goal for next year, so it can continue to pursue growth.
- Retirement plan contributions. If you are a business owner, or self-employed, this could be a great time to consider if you need a retirement plan (if you don’t yet have one), and/or how much contribution might be suitable to make before January 1, 2025. Estimate your total 2024 income and expenses/depreciation, and potential profits for the year. This will help you figure out the proper amount of contributions to make, and get it done before the year is over. Your CPA could have great suggestions as well, so check with them.
- Tax-loss Harvesting. If you invest in the stock market outside of your retirement (also called tax-qualified, or qualified accounts) accounts, it is a good idea to take a look at your realized gains (and losses) for the year, also consider any losses carried over from previous years. Tax-loss harvesting can potentially help you reduce your tax bills if done properly, though be mindful of the IRS wash-sale rules.
- ROTH Conversion. ROTH IRA has the benefit of tax-deferred growth, as well as tax-free distribution when done correctly. So it is a power tool in managing your tax-exposure in later years. A ROTH conversion is a process used to convert money from a pre-tax retirement account (such as in regular 401K, pre-tax Traditional IRA, etc.) into a ROTH IRA account. You will need to pay income tax on the converted amount, but there are no penalties even if you are younger than 59 ½. Again, I strongly suggest that you consult your CPA and financial advisor before doing this.
- Year-end Gifting. Giving Tuesday is right after Thanksgiving (December 3 this year), and this is a great opportunity to support organizations and charities of your choice. And for those with high net worth and want to help their family members, they can give up to $18,000 (per giver, and per recipient for 2024) without incurring gift taxes. Consider the lifetime gift/estate tax exemption (currently at $13.61 million) is projected to drop to around $7 million in 2026 due to the sunset of TCJA 2017, this could be a good topic of consideration for those families who may be impacted by this change.
As always, helps from competent advisors (such as CPAs, estate attorneys, and CFP®s) can provide clarity and directions to help families in building confidence in their financial future. And if you are overwhelmed and still need help, please feel free to reach out. We offer complementary initial consultation to every family. My email is: li.tian@lpl.com
Have a safe, healthy, and happy holiday season. See you all in 2025!
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. Li Tian, Ph.D., CFP® and LPL Financial do not provide tax or legal advice or services. Please consult your tax or legal advisor regarding your specific situation. CFP Board owns the marks CFP® and CERTIFIED FINANCIAL PLANNER® in the U.S.
ART Case # 642114-3