News flash: The end of the year has begun and with it comes the urgency to tackle your end-of-year financial planning.
Now is the time to check those important tasks off your list.
You have a couple of months left to align your finances, manage your expenses and income, and set the stage for next year’s goals.
Taking a moment to handle these “end-of-year” tasks could save you money and position you for financial success in the year ahead.
Employees – Maximizing Employer Benefits
Employees should take a look at their paychecks, employee benefits, payroll deductions and make sure nothing has been overlooked or needs to be accelerated.
Use-it-or-lose-it. The last thing you want to do is have your benefits expire at the end of the year unused. Examples:
- Vacation days
- Sick days
- PTO time
- FSA accounts
- Dependent care accounts
Important side note about FSA and dependent care accounts. If you have any use-it-or-lose-it money sitting in an account, get it used! I see this most often with dental and vision plans. If money can be used toward eyeglasses or finally getting into the dentist, get it done! Make those appointments now, as you will unlikely be the only one with this “problem.” Dentists and optometrists are remarkably busy toward the end of the year. Make sure you have submitted your receipts for reimbursement within the applicable deadlines.
Retirement plans. In most cases, if you can afford it, it makes sense to max out your retirement plan contributions. (There are exceptions to this, but you and your financial and tax professionals should have already had this conversation.)
This is particularly important for those who got promotions and raises during the year and those who have the ability to “super fund” a Roth 401k by making additional post-tax contributions to an employer-sponsored 401k which can be rolled directly into a Roth 401k.
I have seen employees send their entire year-end paychecks toward a tax-deferred account (Roth or traditional) by year-end. You will want to make sure this works for your family’s cash-flow needs and is allowed by the plan’s administrator.
The Self-Employed Have the Most To Do and Potentially the Most To Gain
Payroll. This is largely logistical and probably handled by your payroll provider, but you want to make sure that you’re in compliance with year-end payroll tasks, your employee data is up-to-date, and you communicate what your payroll policies will be for the following year. Tedious tasks and super important.
Review your expenses and income. This is an ideal time to talk with your tax advisor, look at your projected income and expenses for the remainder of the year and next year, and decide whether to push income and/or expenses into this year or next year. What do you have control over, and how might you set this up to benefit you and your business?
Review your tax payments. Again, talk with your tax advisor. Are you on track with your quarterly payments? Can you send in less with the next payment? Might you need to send in more? Here in California, we tend to hemorrhage money in April – previous year’s income tax payments, first quarter income tax payments, and property taxes. It’s brutal. You have the opportunity to lighten this load.
Look at your spending and find other deductions. Your tax advisor can probably look at your P&L from this year, compare it to last year, and find some additional deductions. This is particularly true if you have spent money this year in places you have not historically spent money. If you know you will be spending more money at the end of the year, ask your tax professional about that. Examples:
- Retirement plan contributions.
- Phone/internet expenses.
- Education expenses.
- Insurance premiums.
- Marketing/advertising spending.
- Meals.
- Legal/professional fees
- Auto-related expenses.
- R&D credits.
And potentially more.
Have you maxed out your retirement plans? As the business owner, you may also be an employee with the opportunity to fund the company’s retirement plans. You may not have planned to max it out, but if you have extra revenue this year, you might consider doing so. You’ll need to check with your tax person and third-party administrator.
Any Tax Cuts and Jobs Act of 2017 decisions to make before the end of 2025? The TCJA lowered the corporate income tax rate from 35% to 21%. Does it make sense to change your corporate formation or make a different election on your LLC to save some taxes? Your tax and legal professionals should be able to help you make this decision.
Business planning for the next year. It’s also time to start business planning for next year. Ideally, you will have this done by December 1. Consider:
- Do you need to raise your rates?
- What expenses can be trimmed or cut?
- Will you need to hire next year? Lay people off?
- Are your employee benefits attracting top talent?
- Do you need to revisit your bonus structure for your employees?
- Where will your business come from?
- What needs to be your primary focus? Business development? Tightening your P&L? Acquiring another business? Getting yours ready for sale?
Other Often-Overlooked Items For Everyone
Healthcare issues are the big ones here.
Maxed out your deductible? If you have exceeded your health insurance deductible for the year, you might want to get some of those procedures, tests, evaluations, and appointments done that you have delayed. They might actually cost you less right now.
An MRI is a great example. Get one in February due to a new injury, which might cost $2,000. Get the follow-up one done in December as a follow-up, and if you’ve reached your deductible, it might only cost $500. Same test, different cost to you.
HSA/FSA accounts. In addition to making sure you use any use-it-or-lose-it money sitting in these accounts, ensure they are fully funded! HSAs are typically tied with high deductible health insurance plans, and whether you use the money in those accounts for medical payments or not, make sure they get funded.
Membership program points. These are points that are sitting in your memberships that might expire, all the way from Starbucks to airlines. If these are about to expire and you have a chance to use them, use them! Gift them to someone else! Don’t just let them expire. And beware that points often expire all year long. Watch your email for “warnings” about points about to expire and when you log into your accounts for unrelated reasons, have a look at your membership status.
“You Must Be So Busy”
I hear this a lot from clients and friends.
The truth is: No, not really.
News flash: The “end of the year” happens every year.
I might have a lot to do at the end of the year, but I do most years, and I plan for it. After all, we’re a financial planning firm.
If you want to talk about your year-end to-do’s and how you might plan best for this year and next, please contact us.
Lanning Financial Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
