End of year (EOY) deadlines checklist

Published on December 2, 2020 | 4 min read | LPL Financial

For many of us, a new year is an opportunity for fresh starts and discovering the best versions of ourselves, but some things—like tax contributions and retirement deadlines—don’t change much, if at all. And with that shiny new year right around the corner, meeting end of year deadlines and getting tax efficiencies in place now may prepare us for a smoother transition. Read on for several things you’ll want to accomplish before 2022 draws to a close.

Establish or contribute to a Keogh Plan or Solo 401(k)

In 2022, a Keogh plan, or a tax-deferred pension plan that’s available to unincorporated businesses or the self-employed, allows contributions of up to $61,000 per year—far more than the $20,500 that can be contributed to a traditional 401(k).¹ But to take advantage of these tax savings in 2023, the taxpayer must establish (and contribute to) a Keogh plan by December 31, 2022.

Take required minimum distributions (RMDs)

Anyone with an IRA, 401(k), 403(b), 457, Simple IRA, or SEP IRA must begin withdrawing from these accounts at some point. These withdrawals, which are computed using the applicant’s age, life expectancy, and the total balance of the account, are known as RMDs, and are subject to income tax.

The SECURE Act boosted the RMD age from 70.5 to 72. But because the penalty for failing to take an RMD (or for taking a distribution that’s too small) can be a 50 percent excise tax, missing this deadline can be an expensive mistake.²

Pay expenses for itemized deductions

If you’re likely to deduct more than the $25,900 standard deduction (for married couples in 2022) or $12,950 (for single filers in 2022), itemizing your deductions can make sense.³ But in order to itemize, you’ll need to actually spend this money in 2022. Some of the expenses that can be itemized include home mortgage interest, property, state, and local income taxes, medical expenses, charitable contributions, and investment interest expenses.

Make tax-deductible charitable contributions and annual tax-free gift

Generally, taxpayers can deduct charitable contributions so long as these contributions are made in cash and don’t exceed 60 percent of the taxpayer’s adjusted gross income (AGI). However, certain “qualified” contributions can be deducted up to 100 percent of the taxpayer’s AGI.⁴ Like other 2022 tax deductions and credits, these contributions must be made during the 2022 calendar year in order to be deductible.

Sell stock

The end of the year can be a good time to take stock of your holdings and rebalance them if necessary. You may find that the rise in certain sectors (like tech) and decline in others (like energy) has skewed your asset allocation; selling certain over performing holdings and reinvesting these proceeds according to your desired asset allocation can help bring your portfolio back into line. Before selling stock (and potentially incurring capital gains in the process), you may want to sketch out a rough draft of your federal income tax return to see whether your proposed stock sale will be enough to potentially move you into a higher tax bracket.

Sources

¹https://www.investopedia.com/terms/k/keoghplan.asp

²https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

³https://www.investopedia.com/terms/s/standarddeduction.asp

⁴https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions

⁵https://www.irs.gov/newsroom/irs-seniors-retirees-not-required-to-take-distributions-from-retirement-accounts-this-year-under-new-law

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Asset allocation does not ensure a profit or protect against a loss.

Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess.

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