It’s hard to believe that Thanksgiving is right around the corner. But with six weeks left before the end of the year, there’s still plenty of time to do some financial housekeeping. Below are seven recommendations:
1. Visit your CPA: During tax season, accountants are so inundated with work that they can barely keep their heads above water. At this time of year, though, they’re happy to have visitors. My suggestion: Take an hour to sit down with your CPA and revisit your 2017 tax return. Ask him to walk you through it and ask for his observations and recommendations. Understand the key drivers of your tax bill and ask what steps you could take to reduce it this year. Even if you don’t walk away with any real savings opportunities, I think it will be an hour well spent because it will give you an opportunity to learn the basic mechanics of a tax return.
2. Give tax-efficiently: In the past, charitable contributions were a direct and easy way to lower your tax bill. But with the recent tax law changes, this strategy doesn’t work as well. My suggestion: Consider opening a donor-advised fund and make contributions using the every-other-year strategy that I outlined earlier this year.
3. Hedge your bets on estate taxes: One benefit of the 2017 tax overhaul is that estate taxes now impact far fewer families. Still, as I pointed out recently, there is no guarantee that this will always be the case. So, if you have substantial assets, I still recommend making regular annual gifts to your children. For 2018, the limit is $15,000 per person, per donor. If you have a multi-million-dollar net worth, this may not sound like a lot, but suppose you’re married and have three children. You could give your children a total of $90,000 ($15,000 x 2 parents x 3 children) every year without any impact on your lifetime exclusion.
4. Audit your portfolio – part 1: Around year-end, the conventional wisdom is to conduct tax-loss harvesting — that is, to scour your portfolio for losses in an effort to trim your tax bill. While that is a worthy exercise, I also recommend a different kind of harvesting, which is to thin out the chaff that may be hiding among your investments. While everyone hates taxes, it is important to avoid letting the tail wag the dog, so to speak. Don’t be so allergic to paying capital gains taxes that you suffer for a prolonged period with inferior or overpriced investments.
5. Audit your portfolio – part 2: In the past, I have compared mutual fund companies to junk food makers, constantly churning new and unnecessary — and unnecessarily overpriced — variations on existing funds. Over time, especially if you work with a broker, these types of investments may accumulate in your portfolio. In an article last year, I outlined a four-part litmus test for evaluating investments. My recommendation: If you have some downtime over the holidays, take an hour to scrub through all of your holdings, applying this litmus test. If an investment doesn’t make any sense to you, contact your broker and ask him to explain it. If his explanation doesn’t make any sense, I’d consider selling it.
6. Audit your portfolio – part 3: After several years of mostly steady gains, markets in the U.S. have become quite a bit more volatile over the past six weeks. While this can be unnerving, I see one silver lining: It is a gentle reminder that the stock market can go down as easily as it can go up — perhaps more easily. Consider the performance of some of the market’s favorite stocks this year: Apple is down nearly 18 percent since the beginning of October, Facebook is down more than 35 percent since the summer, and chip maker NVIDIA is down a sobering 44 percent off its high. No one can predict where the market will go next, but you definitely can reduce your risk level by ensuring you don’t have outsized exposure to any one investment.
7. Claim your Social Security account: As you may know, the Social Security Administration has an excellent website that provides easy access to your benefits statement. You can sign up at ssa.gov/myaccount/. I urge you to do this for two reasons: First, in order to build a complete retirement plan, you’ll need to know what size benefit to expect from Social Security. (Note: If you’re married, or ever were married, you’re likely entitled to a spousal benefit, which you’ll want to research as well.) The second reason is that Social Security is, unfortunately, susceptible to fraud. There have been cases in which thieves have successfully applied for and received benefits under someone else’s name. No one is immune to fraud, but when you set up your online account — and secure it with two-factor authentication — you lower the likelihood of this happening.
I wouldn’t expect you to complete every item on this list, but if you choose even a few, I think it will pay dividends as you head into year-end.