While most of us think 2020 was just the other day, the reality is 2021 is coming to an end and 2022 is just around the corner. As we go into Holiday mode, it’s important to do a year end financial check list to make sure you are on track for the remainder of the year. Below are 10 financial items to remember before you ring in the new year.

  1. Max Out Employer Sponsored Plans
    • If you participate in an employer sponsored plan, such as a 401(k) or SIMPLE IRA, you have until December 31, 2021 to maximize your contributions for the year. If you’re over 50, don’t forget the extra catch up contribution amounts. Different plans have different contribution levels, so make sure you don’t contribute over the limit.
  2. Check Federal Income Tax Withholding and/or Estimated Tax Payments
    • Make sure your income tax payments are on track with either income tax withholding or quarterly estimated tax payments. If you do not pay in at least 90% of your tax throughout the year, you may be hit with a penalty.
  3. Required Minimum Distributions
    • If you are subject to required minimum distributions, be sure you take out the correct amount by December 31, 2021. If you fail to meet your RMD, the penalty is 50% of the amount you failed to take.
  4. ROTH IRA Conversions
    • If you are in a year where your income is abnormally low, it may make sense to convert all or part of a retirement plan to a ROTH IRA. The conversion needs to happen no later than December 31, 2021 to make sure you are taxed on the conversion in the year 2021.
  5. Max Out Health Savings Contributions
    • If you participate in a high deductible health plan, make sure you maximize your health savings account contributions. This can be done either through pre-tax dollars with wages or after-tax dollars. If you’re 55 or older, don’t forget about the catch-up contribution amount also.
  6. Spend Flexible Spending Accounts
    • Unlike a health savings account, a flexible spending account need to be used by the end of the year or you lose the funds. As part of COVID relief, an employer can temporarily allow the funds expiration date be March 15, 2022 instead of December 31, 2021. You will need to check with your employer to see if they are allowing the grace period or not.
  7. Charitable Contributions
    • In order to claim a charitable contribution for 2021, the charity must receive the cash or goods no later than December 31, 2021, and the charity must be a 501(c)(3) organization. For 2021, the IRS is allowing a $600 contribution limit for those who are taking the standard deduction.
  8. Annual Meeting Minutes
    • If you own a business that is subject to annual meetings, do not forget to write those up by December 31, 2021.
  9. Loss Harvesting
    • Loss harvesting is a good idea for those who have substantial capital gains in their taxable investment accounts. Loss harvesting is a strategy by which you sell an investment (stock, bond, mutual fund) at a loss in order to decrease your taxable capital gains, therefore, lowering your tax bill. This strategy also frees up funds to purchase an asset that could grow and compound quicker.
  10. Gifting
    • The annual gifting limit for 2021 is $15,000 per person. If you are looking to give someone a sizeable gift as a way to decrease your potentially large estate, it’s a good idea to gift the maximum limit each year so that you do not use up any of your lifetime exemption.

Every financial situation is unique and not all the above may apply to your situation. Should you ever have any questions or concerns on your financial health, please do not hesitate to contact one of our advisors.