December 18, 2018

6 Financial Items to Review Before New Year's Eve

While you’re preparing your eggnog and fireworks for the year-end holidays, it can be useful to take some time away from festivities to make sure your financial plan is fully ready for next year.

Your portfolio, taxes, and financial plan should be reviewed on an annual basis, and December is a good time for that review because of the items associated with the end of the year. Here are six important items to review before the ball drops on New Year’s Eve:

1. Next Year’s Cash Needs

Most investors keep themselves invested in the stock market to minimize cash drag. The smartest investors plan out their budgets for the year ahead by building a month-to-month plan that includes a rough estimate of their monthly budget. Whether it includes an international cruise or a second home, having a concrete understanding of your cash needs for the year ahead is an essential part of keeping a balanced budget.

2. Giving Gifts

December is the season of giving and receiving gifts. For cash gifts, you can take advantage of a tax benefit called the annual gift exclusion. The annual gift exclusion is a tax exclusion of up to $15,000 when that amount is gifted to an individual. You can gift $15,000 to as many people as you like without any tax consequences for you or the recipient. For parents or grandparents, this can be a good way to start building your children’s wealth without incurring any tax burden.

3. Tax-loss Harvesting

While this year may not have been the best year for the stock market, you can take advantage of losses on securities. By selling positions at a loss, you can realize those losses, which can reduce or completely negate your capital gains tax liability. Any extra unrealized losses can be carried forward to use in the future. Capital gains taxes are split between short-term (taxed at your income rate) and long-term (varies between 0 - 20%), so if you can offset these gains by realizing losses, you can minimize the taxes you pay on your gains.

Tax-loss harvesting can also offset up to $3,000 of income, so if you are on the border between two income brackets, this could help push you into the lower of the two. Consult your investment advisor before tax-loss harvesting.

4. Education Expenses

If your children are back home and causing trouble on their winter break, relieve some stress by pulling out their next semester’s tuition payments. You’ll find some peace of mind knowing that you’re ready to send them back to cause trouble elsewhere.

5. Estate Plan Review

Are all your financial plans still aiming toward your long-term financial goals, or have this year’s events changed your outlook? Here is a list of important items to review:

• Estate Documents
• Trusts
• Wills
• Powers of Attorney
• Insurance
• Beneficiaries

By keeping these financial items up to date, you can help ensure you and your family are prepared for anything life throws your way.

6. Portfolio Review

Along with your estate plan, your portfolio may have changed this year, and taking the time to review how your investments have performed can help you decide when to take action. For example, international stocks had a rough year, so your portfolio may be underweight in the international area. Make sure your diversification and asset allocation matches your long-term investment plan. This could mean talking with your advisor to rebalance your portfolio or redoing your investment plan altogether.

Whatever your financial situation is, developing the habit of going through a year-end review will serve you in the long run as you get better at both planning and executing your financial plan. Talking with your financial advisor can help your long-term perspective with engaging conversations about your long-term goals and objectives. If you’re looking for a financial advisor or just a second opinion, Chicago Partners’ doors are open.

Happy holidays!