Hello and happy end of year 2023! I’ve done this post a few times now around this time each year. For kicks and giggles – here is the article from 2015…and again in 2018 and in 2022.  I think in the hustle and bustle of other year end festivities that we can forget about our budget but also can miss some critical financial moves that we could be making. Thankfully none of them will take too much time or energy so you can get back to wrapping up your 2023!

WRAP UP ANY CHARITABLE DONATIONS

Taxes are based off of your adjusted gross income (AGI), which is calculated by taking your gross income and subtracting deductions/credits. From that number you then multiply by the tax rate to find how much you owe (ok technically it’s a tiered tax rate with an increasing tax rate as your income goes up). So, the more deductions/credits that you have, the lower your tax rate will be. Everyone likes paying less in tax, so if you’ve been considering/planning some charitable contributions, go ahead and get them in by the end of the year. 

New for 2023: the standard deduction has increased from years past, to $13,850 per person or $27,700 for married filing jointly. AGI is calculated either by subtracting deductions/credits OR taking the standard deduction. With the standard deduction being much higher now, it may or may not make as much as sense from a tax perspective. If you’re deductions for the year are under $13,850, you’ll just take the standard deduction so a tax contribution may not actually lower your taxes. Keep that in mind but it’s always nice to give! 

RETIREMENT CONTRIBUTIONS

You can contribute $6,500 per year to an IRA. Roth IRA’s are awesome because you pay tax on the money once, and then it grows tax-free when you take it out (at 59.5 years old or older without a 10% penalty). I like the idea of my money growing tax-free for 30+ years. There are a few limitations if you’re a high earner (can read about it on that prior link) but most of us should be apply to take advantage of them. If your employer offers a 401k, it may just be easier to contribute to that and not worry about an IRA, but if your 401k doesn’t have as many options or carries less than ideal fees, then an IRA may make sense. If you are trying to max out your IRA or looking to put a little extra cash you have to good work, consider putting it in an IRA. 

Small asterisk: technically you have until April of the following year to contribute up to $6,500 but it probably is on your mind so might as well contribute before year’s end! 

MAKE SURE YOU’RE SPENDING FSA

The government (and us as consumers) recognize the expensive cost of healthcare. A simple visit to the doctor can run over $100, and a hospital stay can put a huge dent in your savings account. To help you better prepare, the government allows you to forgo paying income tax on funds allocated for medical expenses. They allow you to set this money aside in a HSA (health savings account) or a FSA (flexible spending account). Both are incredibly helpful as they allow you to save up for medical expenses and not pay taxes. I prefer the HSA due to the simple fact that it’s not a use it or lose is situation. If you have a FSA, you may be at risk of losing any leftover money in your account if you don’t use it. Losing money that you’ve worked hard for is probably the worse thing possible! To avoid losing, spend a few minutes researching your FSA plan through your HR intranet or the FSA plan’s website. I’ve seen some plans allow you to roll over some of the money (like $500) at the end of the year. If you are at risk of losing some money, see about prepaying for services that you’ll use next year or stocking up on certain supplies that you know you’ll need. Perhaps you have surgery coming up in January that you could pre-pay for part of what you’ll owe. Or maybe you wear contacts and could use some of that money to buy extra contact solution. 

Do a little research, get creative and find a way to not lose your hard earned money! 

BE SMART WITH THAT HOLIDAY BONUS/ANY SURPLUS

No matter how old I get, my sweet Nana Money Finance still gives me a nice Christmas gift card or ‘a little piece of money’ (as she calls it). The holiday season may very well bring out a little cash bonus for you. Now, if you’ve spent much time on this blog before, you probably know where this is going. As with any surplus/bonus, it’s wise to not spend it all right away! I’m not saying that you should save/invest all of it, but it could be smart to save/invest some of it! Perhaps you depleted your savings account a bit for the holidays, perhaps it was low to begin with, perhaps you didn’t set aside as much to retirement as you would have liked (remember the $6,500 from #2). There are plenty of ways that you can be smart with a bonus, and even $50, $100 or $250 set aside could be good! Every little bit helps! 

LOW KEY THINK ABOUT TAX HARVESTING

Ok, fancy title and this can get pretty complex pretty quickly but the TLDR is that by selling some of the stocks you’ve lost money on (going ahead and giving up on them) that you can use those against stocks you’ve made money off of and sold. So, if you’re looking to minimize taxes, it could be a good time to review some of your investment holdings to see if there are some losses you could realize to offset gains. I don’t personally do a ton of trading in general (long term hold!) but occasionally some years I’ll have some trades that I could work to offset, as it often seems I have losses right alongside my gains!

START GETTING TAX ORGANIZED

Oh YMF in 2015 or even 2018, how simple my financial situation was then! Fast-forward to 2022 things are bit more complicated with: investment property, more dividends, crypto (ugh what a year), dependents, and Mrs. Money’s multiple income streams (#hustler!). As you have some down time during any time you’re taking off or a slowdown at work, it can make sense to spend some time getting documents in order and start making a list of your income sources and deductions!

ESTIMATE TAXES DUE

This is probably the least amount of fun you could have while going through this checklist but I always say that surprises in April come tax time are the worst and so if you can get ahead of it now that it’ll be better. So what this entails is trying to high-level, ballpark figure out if you are ahead or behind on the taxes that you will owe. What you can do is go into your previous year tax return, and typically at either the beginning or the end, your software will show you your effective tax rate. Your effective tax rate is probably somewhere in the 10 to 20% range so if you made $100,000 last year you probably could figure that you will owe $10,000-$20,000 in taxes. Of course, this is very high-level and there are lots of nuances that come in to play like if you had more deductions this year or if you took profits on things like stocks, sales, for example. But loosely speaking, it can be helpful to get a sense of where you stand by looking at your most recent pay stub and seeing the amount of taxes that have been withheld on the federal level.

If you are behind, you have a couple of options. You can go to the IRS website directly and make a payment, or you can update your tax withholding at work to withhold a little bit extra for a few paychecks in an attempt to get ahead of your shortfall. Or recognizing that it’s December, you may decide not to do either of those, but if you are behind, knowing, I think it’s still helpful, that way you could stash a little bit in the savings account temporarily just to set aside for tax time. No one likes surprises, especially around tax time!

HAVE FUN, BUT NOT SPEND TOO MUCH!

The holidays are an incredible time of year, one of my personal favorites. I love the time off, the chance to relax and chill, to see family and friends and celebrate the holidays! It’s fun to go out to eat, bring presents to parties and go to shows or other holiday events. It can be an expensive time of the year for sure, so I can’t in good faith tell you not to spend and to say ‘no’. As with other things in life, you’ll say ‘yes’ to some things but ay have to say ‘no’ to other things. Or perhaps January will just be a chiller month for you financially. Figure out what works for your budget and you goals and stick to the plan! 

I hope that this year has been good to you! Best of luck finishing out the year financially!