Cents & Sensibility — Year-end considerations

Beth Peabody

“Tell me and I forget, teach me and I remember, involve me and I learn.”  Benjamin Franklin

Almost two years ago, I offered to write a monthly column that would encourage readers to learn simple ways to improve financial security. As indicated by the quote from Benjamin Franklin, the goal is to teach readers about finances by involving them with action items each month through which they can learn. By completing specific tasks, readers can become more confident to make the best short and long-term financial decisions.

As the calendar year winds down and families seek to celebrate the holidays together, there are many ways to improve financial security before year-end. A few things to consider include:

  1. Financial markets have been extremely volatile this year and many investments may have lost money since the time of purchase. Use November to review the holdings in your taxable accounts. If an investment has a loss, consider selling it before year-end. These losses can be used in the future to offset capital gains. Place the proceeds from the sale in a similar investment to avoid missing financial markets moving higher. After 30 days you can unwind these trades and repurchase the original investment.
  2. Be aware that many mutual funds might make capital gain payouts before the end of the year, despite posting losses for the year. Check the website of the fund’s provider to monitor any expected payout, especially if it is a relatively new investment for you. If you have a loss in the fund, and the fund is making a payout, consider selling the fund before the record date to avoid paying taxes on gains you technically have not earned.
  3. Consider making gifts to special people in your life by year-end. The annual federal gift tax exclusion allows you to give up to $16,000 per person in 2022 to as many people as you wish without those gifts counting against your lifetime exemption. Beginning in 2023 the annual exclusion increases to $17,000.

If the person you are making the gift to is in a lower tax bracket, consider gifting shares of investments with gains that, once transferred, could be sold with a lesser tax liability.

  1. Review your charitable giving goals. Do not wait until year-end to make your donations as most nonprofits are overwhelmed with activities late in the year. If you are at least 70 and a half years old, consider donating from your IRA(s) directly to the charity. This qualified charitable distribution (QCD) is often the most efficient way to give to charity, however, always check with your tax provider to make sure.

Another method includes transferring appreciated securities directly to the charity and thereby avoiding capital gains taxes that would be incurred if you sold the security and used proceeds to fund a check.

Action item for November: Use the holiday season as an opportunity to share ideas offered in this column with family and friends. Review past column topics, including budgeting, investment strategies and estate-planning suggestions at therecordnewspaper.org/.

Beth Stegner Peabody, CEO of Stegner Investment Associates, is a graduate of St. Agnes School and Sacred Heart Academy.

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