A Simple Year-End Tax Checklist

The end of the calendar year is quickly approaching, and that means it is time to run through our year-end tax checklist. The simpler the better.

Here are a few important items to review and actions to take.

Year-End Financial and Tax Checklist

Re-Subscribe to Go Curry Cracker!

I am ending my email distribution list. It costs $100+ per month. Many months each year this goes unused.

Since you certainly want to continue receiving all of this financially and mentally stimulating content, be sure to subscribe in another way, e.g. RSS, etc…

Estimate total annual income

Q4 dividends, interest, and capital gains are not yet on the books, but Vanguard (and others) usually publish an estimate in November / December.

For 2024 Vanguard has shared this calendar:

With a preliminary year-end fund distribution estimates out on Dec 10, 2024, I can start my 2024 tax calculations for total income, qualified dividend income percentage, and US / Foreign earned income split, and then adjust as necessary / as new information is available.

The actual distributions come in the last week of the year so there are still a few days to adjust before the ball drops.

Determine Your Marginal Tax Rate

From income, we can quickly determine our marginal tax rate. (See our full overview of the federal tax brackets.)

The marginal tax rate is what guides us in most decisions related to tax optimization.

For 2024 we will have a low marginal tax rate, so aggressive Roth contributions and conversions would normally be in order.

Ensure SEPP and RMD distributions are complete

SEPP / 72(t) IRA withdrawals and Required Minimum Distributions have rather unpleasant penalties if the necessary withdrawals are not completed accurately and timely. Review SEPP and RMD distributions to avoid this unpleasantness.

Review Asset Allocation & Rebalance

A good asset allocation stands the test of time through periodic rebalancing. I include Roth Conversions, Capital Gain / Loss harvesting, and cash flow management as part of the rebalancing process.

Our target asset allocation has been about 90% stocks / 10% bonds and 75% US equities / 25% International for as long as I can remember, even with the cash accumulation I did as part of pandemic response.

Our 202x asset allocation chart

Now is a good time to review and rebalance if necessary. I use a combination of a spreadsheet and Personal Capital (affiliate link) for this process.

Finish All Roth Conversions

Any Roth conversions must be completed by Dec 31st. Since Roth conversions can no longer be recharacterized post-TCJA, I will schedule these after I know our “final estimated” total income and amount of unqualified dividends (taxed as ordinary income.)

The actual distributions and qualified dividend income percentage of Mutual Funds / ETFs may be different from the early-December estimate, so some educated guesswork is sometimes necessary.

• Our tax calculator also helps estimate appropriate Roth conversion size.

Harvest Capital Gains / Losses

Similar to Roth conversions, all capital gains/losses must be realized by Dec 31st. I will schedule these after I’ve completed a Roth conversion (if applicable), although I already realized some capital losses earlier this year (This is a good time to remember why to harvest capital losses.)

Related: see thoughts on how to prioritize Roth conversions or Gain harvesting.

• Our tax calculator also helps estimate appropriate capital gain harvest value.

Make final 401k contributions

Ideally, 401k contributions are on auto-pilot and you are able to contribute at least enough to receive a full match from an employer (if applicable.) See the current and past year 401k contribution limits.

Verify all is well, and make necessary adjustments including desired Roth / Traditional allocation.

If you make solo 401(k) contributions manually (like me) be sure you know the due dates for both employer and employee contributions. These dates are set by the plan administrator.

Our solo-401k contribution calculator can help with the math.

Plan for IRA and HSA contributions

IRA and HSA contributions need to be completed by the tax deadline, often April 15th of the following year.

See IRA contribution limits and HSA contribution limits.

If we haven’t already made full contributions for the year, I plan to ensure we have the cash available. This might mean selling stock now or Q1, realizing a capital gain in whichever tax year is more favorable.

Be Sure to get the Full Child Tax Credit

With the expiration of the wonderful child tax credit enhancements that came during the pandemic, it may be necessary to jump through some hoops to get the full child tax credit.

A portion of the Child Tax Credit (CTC) is refundable, but only if you have earned income. If you don’t, it is necessary to ensure a positive tax burden and use the CTC to bring total tax back to zero rather than get a refund. A Roth conversion or capital gain harvest can solve this problem easily but must be done by Dec 31st.

For more details, see Maximizing the Child Tax Credit (even without earned income)

We likely won’t get the full Child Tax Credit this year because increasing our taxable income (via Roth conversion, for example) would result in higher ACA premiums and State taxes that would actually cost us more than the CTC benefit. Bummer.

Schedule Healthcare, Enroll in ACA coverage for next year

Most ACA and employer health insurance plans have a deductible. If you are close to hitting it for the year, December is a good time to schedule Doctor visits and planned care. Free knee surgery in December is possibly preferred to expensive knee surgery in January (or it may be better to meet the deductible in January. The key is planning ahead.)

FSA and HRA dollars may also need to be spent.

For ACA enrollment, results from these end-of-year health checks can inform what level of health insurance coverage we may want for next year. Healthy as an ox? Bronze with HSA. Something isn’t quite right? Silver plan with high CSR subsidies combined with income optimization for the year.

Make Tax-deductible Purchases & Donations / Shift Income to Next Year

For business owners / self-employed, December can be a good time to make necessary purchases. Or it can be a good time to shift income into the future if you expect lower income next year (e.g. bill you clients with a due date of Jan 15 instead of Dec 31.)

Last year I purchased a new laptop as a Christmas gift to myself because our marginal tax rate in 2021 was higher than it will be in 2022. Were it the other way around, I would have gotten myself a Januarymas gift instead.

If you are itemizing (rather than claiming the standard deduction) you can also deduct charitable donations (also by Dec 31st.) Gifting appreciated shares means no capital gains taxes for the gifter or beneficiary.

Alas, the above-the-line charitable deduction changes during the pandemic have expired (can only deduct charitable contributions if itemizing.)

Consider getting an (almost) free vacation for paying your taxes

Either through paycheck withholding or via quarterly estimated tax payments, the IRS collects their money upfront.

For the self-employed, it is a simple process to pay those taxes with a credit card (or four) to get free vacations. (See how Uncle Sam paid for our Hawaii trip. I paid $56 in fees to get over $1,000 in free hotel nights and free breakfast with beach view.)

For employees, you can reduce withholding with an updated W4, and then make quarterly payments as the self-employed do to square up.

Consult with your CPA or Tax person

Tax and investment management are superpowers that anyone can develop, but it takes some time and experience to get there. I learned it all one step (and mistake) at a time.

A good CPA or tax guy/gal who also enjoys the role of educator can really help. December is a good time to meet with them for the first or umpteenth time. You can even bring this list.

I’m sometimes asked if I can help – I do my best to take on that educator roll through this blog and also on the forum. I created a consulting page for those who want something more.

Also this year (2024 tax year), in addition to volunteering for tax assistance for low-income households, I am considering personally helping a few GCC readers do their taxes for a competitive fee. Drop me an email if that sounds of interest.

Summary

• Re-subscribe to GCC!
• Estimate total annual income
• Determine your marginal tax rate
• Ensure SEPP and RMD distributions are complete
• Review Asset Allocation & Rebalance
• Finish All Roth Conversions
• Harvest Capital Gains / Losses
• Make final 401k contributions
• Be Sure to get the Full Child Tax Credit
• Schedule Healthcare, Enroll in ACA coverage for next year
• Make Tax-deductible Purchases & Donations / Shift Income to Next Year
• Consider getting an (almost) free vacation for paying your taxes
• Consult with your CPA or Tax person

Use online tax calculators to help:

• Federal Income Tax Calculator
• ACA Premium Calculator
• Self-Employment Tax Calculator
• Solo 401(k) Contribution Calculator

Enjoy the Holidays

We may spend a lot of time thinking about money and taxes on this blog, but they are small topics in the grand scheme of things.

Have a great holiday season with friends and family, wherever you may be.

We will having Thanksgiving dinner with friends, spend the Black Friday weekend in Tahoe (snowboarding), travel to Taiwan for a few weeks over Christmas and New Years.

Happy Holidays!

Actual photo of me in our hot tub.

What else should be on a Year-End Financial and Tax Checklist?