Procrastination, Deadlines and Year-End Financial Decisions

“Why do today what can be put off until tomorrow?”

“Why do today what can be put off until tomorrow?” Wikimedia Commons

If I have learned anything working in a highly regulated and often time sensitive industry it is that procrastination and deadlines are normally at complete odds with one another. However, from another perspective they need each other to exist. Like some sort of mystical work based yin and yang you have to have one to even understand the concept of the other.

Take this post for instance—I was going to write it back in October to be ready for November to give you all plenty of time to act or follow up on anything that is helpful. But then I got busy and put it off. You all would likely wait until the last week of December to act on this anyway so I’m sure my delay is really a non-event.

Time waits for no one and there are some important financial decisions that need to be considered before 2017 arrives. Deadlines exist for a reason and sometimes they are just too important to miss.

Before 2016 is over consider the following

1. Maxing out a retirement plan

In 2016 you can contribute up to $18,000 to your company 401(k) (or other qualified plan).

If you have not met that amount through normal regular contributions contact your HR department or your plan administrator for help with making a final true up contribution.

With tax cuts looming for everyone in 2017 and beyond it makes even more sense to lower your 2016 tax burden. Income received in 2016 is likely to be taxed more heavily than ones received after 2016.

It is also important to remember that putting more money into retirement now allows you more opportunity and time to take advantage of the wonder of compounding interest. If you add the max of $18k this year and get a pedestrian 6% average annual rate of return for the next 25 years it will have turned in to over $77k when you near retirement. Be on the right side of this modern wonder for a change!

Consider maxing out a retirement plan

Consider maxing out a retirement plan Pexels

2. Year-end charitable giving

Getting rid of clutter before the Christmas season and before the year-end is as good a time as any.

Track what you give and keep good records regarding the value of the items donated in case you are ever audited.

Because tax rates are likely to go down for all taxpayers in the future and some deductions might be limited this is an optimal year to lock in the benefits of charitable deductions while benefiting your favorite cause.

Whenever possible give appreciated stock to a charity in lieu of cash. Most charitable organizations are more than happy to accept marketable securities.

By giving away appreciated stock you can lower your overall tax burden by avoiding the capital gains tax that would be associated with you selling the asset. Assuming a long term capital gains rate of 15% a gift of appreciated stock to a qualified charity is worth 15% more to you than giving cash.

If you have appreciated stock but no current charity to give it to consider setting up a Donor Advised Fund. This is an inexpensive way to get a current year tax deduction and build a fund that can be used for charitable giving at any point you wish to in the future.

3. Tax loss harvesting

Make lemons into lemonade by selling assets held at a loss.

If life gives you lemons...

If life gives you lemons… Pexels

Upon sale the loss is realized and realized losses can be used to offset income and gains from other sources.

Because all tax rates are likely to go down in 2017 losses used to offset 2016 income are more valuable than ones used when taxes are lower.

If you have losses beyond your gains you can still carry them forward to be used in future tax years.

Additional Considerations

These three planning items are things most people can and should do. For people who are high wage earners and have a taxable estate (currently about $2MM per person for Washington State and $5.4MM per person Federally) there are additional planning options that should be discussed with your CPA, attorney or financial advisor.*

*The views expressed here are my own and do not necessarily reflect the views of Washington Trust Bank.

Scott D. Hedgcock is a financial planner who is passionate about educating helping others understand and reach their financial goals.  When he isn’t at work Scott is at home with his wife and 4 kids helping take care of their small suburban farm just north of Seattle.  Scott is employed as an Assistant Vice President with Washington Trust Bank in Bellevue, WA.  You can follow Scott on Twitter @sdhedgcock or find him on Linkedin at www.linkedin.com/in/scotthedgcock

Procrastination, Deadlines and Year-End Financial Decisions