The holidays are a whirl of parties, presents, lights, and looking back on the year just about over. Along with the rest of the seasonal activities, we at Bowen Asset Management hope you’ll have time for one more: our year-end planning checklist. We hope this will make for a happy reflection on the old year and a successful and prosperous new one.
- Financial goals. Did you meet your financial goals for 2019? Do these goals need to be changed or updated? Review your investments to help ensure you are meeting your financial goals.
- Year-end review. Did you have any life changes during the year that need to be addressed? This would include selling, transferring, and/or purchasing a major financial asset; a change in marital status; an addition to your family; or receiving a gift or inheritance.
- New W-4 form for 2020. On December 5, 2019, the IRS issued the redesigned 2020 Form W-4 (Employee’s Withholding Certificate). The new form no longer uses withholding allowances. Instead, there is a five-step process and new Publication 15-T (Federal Income Tax Withholding Methods) for determining employee withholding. Only employees hired in 2020 or those that make withholding changes in 2020 must use the new form. For more questions, please see the FAQ on the IRS website: https://www.irs.gov/newsroom/faqs-on-the-draft-2020-form-w-4
- Cyber Online crooks are less like high–tech burglars than they are petty pickpockets, looking to grab whatever access they gain and cause whatever havoc they can, whether it has remunerative value to them or not. (Note the recent wave of harassment from hackers taking over online doorbell and home-security systems). One of their main targets are passwords, which too many of us make simple (so we can remember them) and use for everything. One solution is to change your passwords annually, at a minimum, or (better) use a password manager. By following a few guidelines, you can make your information less attractive to online thieves and hooligans. For help with finding a password manager and advice on other ways to stay safe, see our Bowen Reports piece:
https://bowenasset.com/use-that-cookie-jar-cybersecurity-and-you/
- Finding an accountant. If you need an accountant or are thinking of changing accountants, now is the time to search for a new one. When choosing an accountant, consider these questions: What degrees or licenses does the accountant have? How many years has the accountant been in the business? What fees will be charged? Is the accountant’s expertise relevant to you? Who will prepare your return? Will the accountant represent you if you are audited?
- Tax gain/loss harvesting. Higher capital-gains tax-rates make buy-and-hold strategies more attractive; the higher the tax rate, the more valuable the strategy. Similarly, it becomes more important to harvest tax losses to shelter gains that would otherwise be taxed at the higher rate. Consult with your accountant on how to structure tax losses to offset gains for the year.
- Year-end income planning. Examine any remaining income that can be deferred from one taxable year to the following year. Often, year-end bonuses and discretionary investment income can be shifted one year to the next. On the flip side, prepaying property taxes, medical bills, or estimated state taxes, if you’re able to do so, can give you added deductions to further reduce your taxable income.
- Max out your 401(k)/IRA contributions, including any catch-up contributions. You have until April 15, 2020, to fund your IRA for 2018. If you have an employer-sponsored retirement account, you should review where your money is invested and make changes to this account. Consult your investment adviser/tax accountant for any help. If you left a job and your 401(k) behind, take the time to consolidate accounts. For 2019, you can contribute $6,000 to a traditional IRA, plus a $1,000 catch-up contribution if you are age 50 or older. For a 401(k), you can contribute up to $19,000, plus a $6,000 catchup contribution, if you are age 50 or older.
- Taking Required Minimum Distributions? If you are reaching the age of 70½, you must begin to take Required Minimum Distributions from traditional IRAs and 401(k)s. It is advisable to come up with a strategy on how best to take these distributions. If you inherited any type of retirement account, check if you need to take a Required Minimum Distribution. If so, whose life is it based on: yours or the decedents?
- Research charitable contributions. If you are considering making any year-end charitable contributions, you may want to do the research now. Just as with investing in a for-profit firm’s stocks, it’s still important to ensure that the money you put into a charity will have a good return on your investment (i.e., making sure the money you give will be efficiently put to good use) so your donated resources are not squandered. Check out our Bowen Reports piece: https://bowenasset.com/category/charitable-giving/
For taxpayers who are planning on claiming the standard deduction in 2019, there are two strategies to consider. For those age 70½ or older, distributing funds from an IRA tax-free directly to a qualified charity (up to $100,000 per IRA owner and can include RMDs) may be a good option. Another strategy is the concept of “lumping” multiple years of charitable gifts into one year in order to itemize deductions on that year’s tax return. For example, instead of a couple gifting $10,000 annually to a charity, they may consider gifting $30,000 in one year, representing three years’ worth of gifts. The couple could benefit from itemizing deductions that tax year and claim the higher standard deduction the next two years.
- Cash gifts and taxes. If you can afford to be generous, in 2019 you can give up to $15,000 each to any number of individuals with no gift tax or reporting requirements. Also, there is no tax for the recipient. Unused portions can’t be carried over to the next year. Individuals can make unlimited gifts on behalf of others by paying their tuition costs directly to the school or their medical expenses directly to the health care provider.
- Check on all beneficiaries on life insurance policies and retirement accounts to make sure these are accurate. These types of investment accounts pass to the beneficiary when the owner dies, despite what the will may state.
- Check on flexible spending accounts. If you have any type of flexible spending accounts, check to see how much money is left in them to make sure it is used it up before the year’s end.
- Look into 529 accounts. A grandparent–owned 529 account, which is free of federal income taxes until the money is withdrawn, is not reported on the Federal Student Aid (FASFA) form. Thus, it does not affect the grandchild’s financial-aid eligibility. However, once it is distributed, it is considered the grandchild’s income and may affect how much the grandchild will receive. Grandparents can also open IRAs for their grandchildren. They can contribute up to 100% of the grandchild’s earned income into the account. Check with your account and financial advisor for the best way to set these up. For more on this, look at our Bowen Reports piece:
https://bowenasset.com/college-credit-529-and-coverdell-educational-accounts/
- Review financial and investment documents. It is easy to get into the habit of keeping every financial or investment document forever, just in case. But if your New Year’s resolution is to get your financial house in order, this Bowen Reports piece has suggestions about retaining financial and investment documents:
https://bowenasset.com/how-long-to-keep-important-financial-papers/
If you have any questions about this article, please contact us at 610-793-1001 or info@bowenasset.com.
*Disclaimer
While this article may concern an area of investing or investment strategy in which we supply advice to clients, this document is not intended to constitute a complete description of our investment services and is for informational purposes only. It is in no way a solicitation or an offer to sell securities or investment advisory services. Any statements regarding market or other financial information is obtained from sources which we and/or our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Past performance should not be taken as an indicator or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. As with any investment strategy or portion thereof, there is potential for profit as well as the possibility of loss. The price, value of and income from investments mentioned in this report (if any) can fall as well as rise. To the extent that any financial projections are contained herein, such projections are dependent on the occurrence of future events, which cannot be predicted or assumed; therefore, the actual results achieved during the projection period, if applicable, may vary materially from the projections.