End of Year Financial Planning Tips

By Pamela Welch
December 12, 2022

2022 is already coming to an end. As the year winds down, it’s a good time to take stock of your financial affairs and ensure you’re well-positioned for welcoming 2023.

Some Financial Planning Items to Review and Consider Before Jan. 1

1. Take Your RMDs

If you’re over the age of 72 and you have an Individual Retirement Account (IRA) or similar tax-deferred retirement plan, you may need to withdraw a required minimum distribution (RMD) before the end of the year.

If you are in RMD status and fail to take your required distribution by Dec. 31, the IRS could impose a 50% tax penalty. If you inherited an IRA from someone who was in RMD status, you may be required to take an RMD for the year even if you are under age 72. Contact your financial advisor to discuss whether you need to take an RMD for 2022, and if so, how much that distribution should be.

2. Examine Your Portfolio

The stock market has seen some dramatic ups and downs this year. If you were lucky enough to recognize some gains earlier in the year, consider the positions you are currently holding to determine if there are capital losses you could harvest before the year ends to offset those gains.

The IRS only allows you to realize up to $3,000 of net capital loss for the year, meaning you can offset up to $3,000 of other types of income with capital losses. Any net loss more than $3,000 can be carried over to future years.

3. Consider Financial Gift Exemptions

For 2022, you can bestow gifts of up to $16,000 per recipient without the need to report the gift to the IRS. This annual gift limit will increase to $17,000 per person in 2023.

While total gifts made to any one person of more than $16,000 in the year will require the filing of a gift tax return, you are not subject to any gift tax until you have exceeded your lifetime gift exemption, which is currently $12.06 million.

While the lifetime gift exemption is currently high, it is expected to drop down to half of the current value in 2026. If the total value of your assets is more than $6 million, there are some unique opportunities to use lifetime gifts within the next few years to reduce your exposure to estate tax in the future.

4. Consider End of Year Charitable Contributions

If you itemize deductions on your tax return, you are likely familiar with the ability to recognize a deduction for making charitable donations before the end of the year. With the recent increases in the standard deduction amounts, many people no longer benefit from itemizing their deductions.

If you find yourself in this situation, there is another way to benefit the charities that are important to you while also receiving a tax benefit. If you have an IRA or other qualified retirement plan, you can direct donations to charities straight from your IRA as a qualified charitable distribution. This way, you avoid paying tax on the amount directed to charity, and you can even use this qualified charitable distribution to satisfy any required minimum distribution for the year. There are specific rules which must be followed to recognize this benefit, so work with the custodian of your IRA to ensure that the proper steps are followed.

Deadline: Dec. 31

Keep in mind, you must complete these strategies by Dec. 31 to receive any benefits. Also remember your planning priorities and financial goals for 2023. It will be time for New Year’s resolutions before you know it!

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