It is time to get your financial stuff ready for year-end. I love thinking ahead and making a plan. I do not like procrastinating. (It is possible that most people don’t like procrastinating and, yet, I find that many folks wait until the last minute to do something, so I’ve decided they must actually LIKE procrastinating.) With Christmas only a week away and 2022 just one short week later, now is the time that I want to get my year-end stuff together. Let’s talk about what that means. First of all, most of us need to file tax returns to federal and state governments. That is the minimum of what needs to happen, so anything we do must address that. Next, this is a good time to look back on 2021 and review our successes and misses for this past year. Finally, we plan for 2022. That is the fun part.
In an earlier column, I talked about putting tax-related documents into files. Some of these will be paper files and some will be virtual. With a few weeks left in 2021, I want to put aside time to go through my paper folder called Tax File. I am talking one hour – 60 minutes – a very short time commitment. I sort the documents into piles: e.g., charity, banking, retirement, purchases. I keep those documents which either contain information I will need for tax preparation or relate to big or important purchases. Anything else gets discarded. I paper-clip remaining papers together by category so it will be easier to go through when I prepare my taxes in 2022. Over the next several weeks, I will continue to file tax documents as I receive them, and by the end of January, I should have everything I need to prepare my returns.
Now, that I’ve gotten my tax folder ready, I analyze my financial situation relative to the remaining days in 2021. Examples of tasks:
- I consider if I should make any additional tax payments. Am I concerned that we did not withhold enough during the year? Did I have more self-employed income in the last quarter of the year than anticipated? Now is the time to ensure I have put aside enough money to make these tax payments. The final 2021 (4th quarter) estimated tax payments are due by January 15, 2022.
- Can I put more money into an IRA or SEP? I have until April 15, 2022 to do this, but I don’t want to procrastinate and then forget to do it. It is worth spending 10 minutes thinking about this now.
- Although my husband and I manage our investments, we do use a financial advisor. This is a good time to call her and schedule an appointment. I like to meet with her in the spring after I’ve filed our 2021 tax returns and can include them in our discussion. Many people like a meeting in January to start the new year off strong.
- I spend another 30 minutes going through my other files to see if anything has fallen through the cracks. I review house projects, trips, major purchases, and banking.
I have cleaned the slate and am ready to plan for next year. Ideally, my husband and I will sit down in January and review what we were able to accomplish in 2021. This includes house projects (the “we” here is mostly “he” as he does much of the DIY work at our house), vacations, fun activities, trips. That will lead to a discussion of 2022 house projects to be tackled. We will also look at vacation plans and possible trips (Covid has made this part much less fun and harder to plan).
By being in charge of money matters and ensuring our financial stability, we have the ability to make plans for what we would like to accomplish next year. And the year after. It takes a bit of investment of time, but the rewards are great.