2023 Year-End Checklist

As we approach the conclusion of another transformative year, taking a moment to fine-tune your financial strategy can set the stage for a successful journey into the New Year. At Boyer Financial Services, we advocate for proactive financial planning that empowers you to make informed decisions. Here’s a checklist covering key areas to review before the sun sets on 2023.

Portfolio Assessment

While market timing is not our focus, years with market fluctuations offer an opportune moment to assess your portfolio. Ensure that it aligns seamlessly with your financial needs and goals. Explore capital redeployment into undervalued sectors or asset classes and leverage tax-loss harvesting(more on this below) for potential future capital gains. A Roth conversion may be advantageous for strategic individuals based on your income tax bracket and longevity.

Health Care Planning

Health is wealth, and proactive planning is the key. Maximize the triple tax advantage of your Health Savings Account (HSA). Take full advantage of tax-deductible contributions, tax-free growth, and qualified withdrawals for covered medical expenses. Crafting a strategic approach to your HSA can be a powerful tool for managing healthcare costs. Unused balances in your HSA will roll over year after year and accumulate interest or can be invested in the market.

Charitable Giving

As the holiday season beckons, it’s an ideal time to review your charitable giving strategy. Reflect on causes or organizations that resonate more deeply with your values. Seize the tax benefits associated with charitable contributions. Evaluate and adjust your giving plan as needed for the upcoming year. There are multiple vehicles to take advantage of potential tax deductions. One of our favorites is the donor-advised fund.

A Donor-Advised Fund (DAF) is a philanthropic vehicle allowing individuals, families, or organizations to make charitable contributions to a centralized fund and recommend grants to qualified nonprofit organizations. The critical elements of a Donor-Advised Fund include:

  1. Contributions: Donors contribute assets, such as cash, securities, or other appreciated assets, to a sponsoring organization that manages the DAF. This sponsoring organization is often a public charity or a financial institution specializing in managing charitable funds.
  2. Tax Deductions: Donors receive an immediate tax deduction for their contributions to the DAF. This deduction applies in the year the contribution is made, even if the donor recommends grants to specific charities in future years.
  3. Recommendation of Grants: Donors retain the advisory privilege to recommend how the funds in the DAF should be distributed to eligible charitable organizations. While the sponsoring organization has the legal authority to approve or deny the recommendations, they typically follow the donor’s preferences as long as the recommended recipient is a qualified 501(c)(3) nonprofit organization.
  4. Investment Growth: The assets in the DAF are usually invested, and any investment growth over time can increase the amount available for charitable grants.
  5. Anonymity: Donors can make their grants anonymously if they prefer not to disclose their identity to the recipient charities.
  6. Flexibility: DAFs offer flexibility in terms of timing charitable contributions. Donors can contribute to the fund when it’s most financially advantageous and then take the time to decide on the distribution of grants.
  7. Minimum Contributions: Some DAFs may have minimum contribution requirements, and there might be fees associated with fund management.

Donor-advised funds are popular for individuals or families who want to simplify their charitable giving, receive immediate tax benefits, and have the flexibility to support various charitable causes over time. They have become an increasingly common tool for charitable giving and philanthropy.

Tax Harvesting

Tax harvesting is a strategic move in the financial playbook, and our experts can guide you in leveraging this tool to offset potential capital gains. Tax loss harvesting is a strategy employed by investors to minimize their capital gains taxes by offsetting gains with realized losses. The basic concept involves selling investments that have experienced a loss to offset the capital gains generated by profitable investments. By doing so, investors can reduce their overall tax liability.

Here’s how tax loss harvesting typically works:

  1. Identifying Losses: Investors review their investment portfolio to determine securities or assets that have decreased in value since their purchase.
  2. Selling Losses: The investor sells the underperforming assets to realize the capital losses. This generates a loss that can be used to offset capital gains.
  3. Offsetting Gains: The realized losses can be used to offset any capital gains realized during the same tax year. If the losses exceed the gains, the excess losses can offset other income up to certain limits.
  4. Buying Similar Assets: To maintain market exposure and investment strategy, investors can reinvest the proceeds from the sale into similar but not identical assets. This maintains the overall structure of the portfolio while still taking advantage of the tax benefits.

Tax loss harvesting is not only applicable to individual stocks but can also be applied to other types of investments like mutual funds, exchange-traded funds (ETFs), and bonds. However, there are certain rules and regulations investors need to be aware of, such as the IRS wash-sale rule.

Wash-Sale Rule: According to the wash-sale rule, if an investor sells a security to realize a loss and buys a substantially identical security within 30 days before or after the sale, the loss may be disallowed for tax purposes. This rule is in place to prevent investors from taking advantage of the tax benefits without making significant changes to their investment positions.

Tax loss harvesting is a proactive tax planning strategy that can be employed throughout the year, not just at the end. It requires careful consideration of an investor’s financial situation, tax goals, and market conditions. Tax laws can change, and individual circumstances vary, so it’s advisable to consult with a tax professional before implementing any tax strategy.

Budget Review and Adjustments

Your budget is the compass of your financial journey. Let’s identify areas for optimization and fine-tune your budget to align with your evolving lifestyle and financial goals. First, make a list of your fixed (amounts that don’t change each month, like car payments, mortgage, etc.) and variable (amounts that could fluctuate from month to month, like electricity, groceries, gas, etc.) outflows to get an idea of where your money is going. Give yourself wiggle room on the variable outflows so you know your max limit on that spend. Our financial planning software, MoneyGuide Pro, has a budgeting tool where you can see where your cash flow is being utilized. If you want to use another software, I suggest trying Mint from Intuit. It’s a great tool that I employ.

As you embark on this year-end financial review with Boyer Financial Services, our dedicated team is here to provide personalized guidance tailored to your unique circumstances. Secure your financial future with confidence as we navigate the seas of 2024 together.