Podcast Episode 121: Year-End Financial Checklist for Optometrists

[00:00:00] Hey, everybody. Welcome back to the Optometry money podcast, where we’re helping ODS all over the country, make better and better decisions around their money, their careers, and their practices. I am your host, Evon Mendrin, Certified Financial Planner practitioner, and owner of Optometry Wealth Advisors. An independent financial planning firm, just for optometrists nationwide.

[00:00:25] And thank you so much for listening today. Today’s conversation is going to be all about a year end checklist for your finances. And this is a perfect time as, as the holidays are coming, as you might have some time with friends and family and to yourself to kind of take a look at uh, the end of the year. to take inventory of what needs to be done before the end of the air. what are some things about just the health of your finances that you should review? a lot of you, if your practice owners are looking at your practice and kind of thinking about. planning for the next year, you know, thinking about your goals for the next year, for the business, what you want to accomplish, what, what, well, throughout the year, how has the financial health of the practice?

[00:01:08] Well, in, in the same way, I think this is a great time to sit down, take inventory of what needs to be done by your end. And what are some things related to the health of your finances? That we should keep tabs on. And so with that in mind, let’s go ahead and dive on in. And of course, any links, resources, articles that I mentioned here, you can take a look at in the show notes, which you can find at www.optometrywealth.Com while you’re there, of course, check out all the other articles and podcasts, episodes, resources we put together.

[00:01:40] And if you’re listening to this episode and thinking about, man, I really need to tackle some of these things. I really need some help working on some of these things. And you’re interested in what it’s like to work with a Optometry focused financial advisor. , Reach out. , while you’re on the website, you can schedule a no commitment introductory call. We can talk about whatever’s on your mind financially and how I help optometrist navigate those same issues all over the country. So with that in mind, let’s dive right in.

[00:02:06] Adjusting Retirement Plan Contributions Before Year-End

[00:02:06] So the first set of things, I think we should keep an eye on as we go through December are year end specific stuff, meaning this stuff has to be done before the end of this tax year. And first thing that comes up is going to be payroll contributions to different retirement accounts, and that’s going to be your 401k accounts and SIMPLE IRA accounts.

[00:02:29] And if you are receiving a wage and you’re making contributions to your employer, retirement account, whether you’re an associate doctor, whether you are self-employed taxed as an S corporation and paying into a solo 401k, or whether you’re the practice owner, you need to make sure that you are taking a look at where you are on track for in terms of your contributions towards the maximum.

[00:02:53] And if you are on pace already meaning you can look back at how much you’ve contributed year to date, and if you’re on pace for where you want to end up, that’s great. If you are below where you want to end up. So for example, if you want to hit the maximum. Then you gotta look at how many pay periods you have left, which at this point in December, probably one or two. And you gotta take a look to see, can you make any adjustments to get you closer to that?

[00:03:18] So for example, at the 401k. the employee maximum, if you’re under 50 is 23,000. If you are over 50, you get a bump, a catch up. So that makes it 30,500. If you are in a SIMPLE IRA plan. you have a $16,000 employee maximum. If you’re under 50 and 19,500, if you are 50 or older, however, something I don’t know is well understood is that due to the recent SECURE Act 2.0.businesses with 25 employees or fewer, which is quite a bit of you practice owners out there, you get a 10% bump to your SIMPLE IRA contributions. Both. If you are under and over 50.if you have 26 or more employees, then you have to have a specific, enhanced match. So if you’re eligible for that 10% bump, that makes your SIMPLE IRA employee max 17,600. Or if you are 50 and older, 21,450. So talk to your SIMPLE IRA provider to make sure this is in effect in that you qualify for this bump in your contribution.

[00:04:26] So you have these maximums take a look at what you’ve put in year to date. Take a look at what the gap is between that and where you wanna end up at the end of the year and then how many pay periods do you have left? If you are the owner or if you are an independent contractor? You have more flexibility here, so you can do, for example, an increased bonus at the end of the year, to try to increase the wage to get as much as he can into these plans.

[00:04:54] Just keep in mind. Any addition to wages is going to increase those social security, potentially social security, but certainly Medicare taxes.

[00:05:02] As well as impact other things like your potential QBI deduction, things like that. So you don’t necessarily want to be forced to increase your wage substantially when you prefer not to simply from a tax standpoint.

[00:05:15] So you have to kind of balance that out. Sometimes it makes more sense to just fit you know, as much as he can into the remaining paychecks. And very often you can offset that with those distributions that you’re taking out of the practice.

[00:05:28] You only have a few more weeks left to, to look at where you want to end up by the end of the year and where you’re at now. And one other comment I’ll make about SIMPLE IRA plans is that these have to be for your employee contributions.

[00:05:41] These have to be payroll contributions. In a SIMPLE IRA plan, you can only make payroll deductions as a contribution as an employee. Or the employer contributions. You can’t make an individual contribution to a SIMPLE IRA account outside of payroll. Like you would, if you were to do it to like a Traditional IRA or Roth IRA. The SIMPLE IRA contributions have to be done through payroll.

[00:06:06] So you have to keep that in mind. one other thing related to those contributions that you want to start to project out and get a feel for our profit sharing contributions. Now the profit sharing contributions to a 401k plan specifically. Do not actually need to be made, meaning that the dollars don’t actually have to go into the plan. Until the tax filing deadline for your business.

[00:06:31] Plus extensions. However, what does need to be done by the end of the year is the amount of wages that you’ve paid yourself.

[00:06:39] And this is important because for profit sharing contributions, As a whole the amount of profit sharing contribution you can do into the 401k account is going to be limited by the wages paid by the business for that year. So employee wages will factor into that. But also because as those contributions per employee, including yourself are calculated. The amount of that ends up in your accounts versus all other employees. Is going to be determined by the wages that you’re paying yourself.

[00:07:11] It’s going to be limited or enhanced by your own wages as the owner. If you’re an S corporation owner. Or very often it’s the owner and your spouse. Uh, as I commonly see with spouses that are both involved in the business or both own the practice together.

[00:07:26] So, if you are trying to target a certain dollar amount or a certain skewness towards your own accounts and as a part of that profit sharing contribution. You need to have a plan for how much your wages should be by the end of the year. And so hopefully you’re able to talk with your third-party administrator for the plan. I run a projection to get a feel for what that should look like and make end of your adjustments to your W2 if needed, whether it’s increasing payroll, whether it’s just an end of year bonus, whatever that needs to be.

[00:07:58] Anything related to wages needs to be acted on by the end of the tax year, just keep that in mind.

[00:08:03] Year-End Tax Planning Actions for Optometrists

[00:08:03] Now let’s talk about other tax planning, specific action items that need to be handled. hopefully you are working with your professional team, your financial planner, your tax advisor, to, to put together a tax projection for you. And so you’ve had these opportunities to talk about end of year actions that need to be taken before the end of the year, if not strongly recommend reassessing your professional team to see if that’s something that can be added to your life.

[00:08:30] Because there is a world of difference between showing up at tax time and just reacting to the things that have. Already been done. Versus going towards the end of the year with an idea of what you’re expecting at tax time. And what you can do to impact that one way or another.

[00:08:47] And the first thing that you’d want to think about heading towards the end of the tax year is, are your books up to date? Meaning are you regularly updating the categories of the different transactions in your practice? If you’re a practice owner, are you reconciling all the different accounts inside of your QuickBooks or whatever your bookkeeping software is? Are they accurate or preferably are you using a good bookkeeper that knows Optometry really well.

[00:09:15] That is regularly on top of keeping clean, accurate timely books because ultimately nothing else matters. If there’s not clean data to look at. And to project out for tax purposes. And to talk about for cashflow and things like that, right. Everything relies on, on the accuracy of your bookkeeping. So number one are your books up-to-date as we get to the end of the year.

[00:09:36] Number two, withholdings check withholdings.

[00:09:39] Right? This is related to those wage issues we talked about earlier is that. If you are taking withholdings through a W2 paycheck. Do you need to make adjustments to those withholdings through the end of the year? Again, we only have maybe one or two paychecks left. Before the end of the year. So do you need to make any adjustments to get you closer to what your expected taxes at tax time, or at least under withholding thresholds to avoid an under withholding penalty.

[00:10:07] The IRS gives you certain thresholds in order to get there certain safe harbors as we usually call them. So , are you on track for your state and local taxes and federal taxes? Or do adjustments need to be made before the end of the year?

[00:10:21] And then if you own a practice, are there end of your practice investments that need to happen before the end of the year, so that you can take advantage of them for this tax year. So for example, if you are buying equipment this year, because your business needs it and you will have a positive return on the investment. Is that equipment going to be not only purchased but delivered and put in service this tax year. So that you can benefit from that this tax year. are you paying for expenses upfront?

[00:10:49] So any of the practice or business-related deductions or actions that need to be taken, what needs to happened before the end of the year.

[00:10:57] the other thing that often comes up for, S corporations or partnerships is the pass through entity tax credit. So if you, for example, have a practice it’s taxed as an S-corporation. and it made sense for you and potentially the other owners, if you have co-owners. you can pay your state taxes through the business. And those state taxes that are paid through the business can be deducted as a federal tax deduction because it’s a, it’s a deduction on the profit and loss. And then you get a credit on your state tax return to account for the fact that you paid those taxes through the business.

[00:11:35] So essentially for those, for those of us that are limited on the amount of state and local taxes, we can deduct on our personal tax return as an itemized deduction, which is 10,000 currently. We can take advantage of this pastor entity tax credit. Now, every state’s different, every situation’s different. Right? So lean pretty heavily on your own tax professional to see what works. But where that often comes up is that very often there’s a second or, or final state tax payment that needs to be done at the beginning of the following year.

[00:12:08] At the beginning of next year, before you file your business tax returns. Well your tax professional and advisors might, might advise you to, instead of waiting until next year to make that final payment by the end of this tax year, so that it shows up on this year’s profit and loss and this year’s tax return.

[00:12:25] So talk with your professionals to see if that makes sense, sort of timing of payment makes sense.

[00:12:30] donations to charity. This is something that also needs to be taken to account and take an action before the end of the tax year. As you might be familiar with donations to charity is one of those itemized deductions that you can take on the federal tax return, meaning that. every family gets to choose between a standard deduction, which is just a standard dollar amounts each taxpayer gets to take. Or itemized deductions, which is a specific list of personal expenses, personal deductions that you can stack up. And if that list of itemized deductions is higher than your standard deduction. Then you can take that higher deduction. You can take the higher of the two. And so very often what I, I see advised and what I’m working with with clients is that CA do we have enough of those deductions, including donations to charity? To to benefit from that in this tax year.

[00:13:22] And sometimes that means bunching donations to charity, meaning we’ll rather than donate small amounts to a nonprofit or a church or something that, that each year. We’ll bunch, those together into every other year or every third year or something like that. So that we can take advantage of those. And then in those other years, we’ll get that higher standard deduction. But if that needs to be done, make sure you’re doing that before the end of the tax year. And that don’t, that charity is receiving it and cashing that check or however that’s happening.

[00:13:53] Right. So that is something that needs to be done by the end of the tax year. And importantly, if you are contributing to a donor advised fund, Make sure that that donation is happening before the end of this tax year as well. importantly, sometimes we’ll recommend if a, if a client has a large taxable brokerage account and we’ve got all these ETFs or funds or investments that are really highly appreciated, meaning if, if you sold it to create cash, There’s a pretty high capital gain to expect. What we’ll often advise is what we’ll often advise is rather than donate cash to the donor advice fund or to a charity. You can donate shares that have appreciated.

[00:14:33] So those shares go directly from your, taxable brokerage account. To that donor advised fund or to that charity, if they’ll accept shares and that donor advise fund and that nonprofit can sell it and they don’t have to deal with taxes. And then you can take whatever cash you would have otherwise donated and just reinvest it back into your investment account.

[00:14:54] And so you’ve essentially wiped away the gains on those shares. But importantly, if you’re doing that to a donor advised fund, you need to be aware of any year end deadlines to make sure that that transfer happens and is accounted for, for this tax year.

[00:15:08] And just an important note in general is that. Custodians these financial institutions where you are. you are handling all of these transactions are handling your investments. They’ll often have their own internal deadlines to do these things. Which can often be before the end of the year.

[00:15:28] I mean, quite literally, we might see these deadlines come up over this next week or so.and every custodian is going to be a little different, but you need to take a look at what action are you trying to do within your investment accounts to impact your tax return? And. And what is that institution’s deadline to get that done. And if there is a certain deadline, what actions do you need to take to get creative and get around it? So a donor advised fund contributions, transfers into the donor advised fund. That’s often something I see. I also see things related to Roth conversions.

[00:16:02] So if you want to do a Roth conversion, which is transferring dollars from a pre-tax Traditional IRA, for example, A pretax retirement account into a Roth retirement account and that transfer that conversion is taxable income in the year you do it. But it continues to grow tax-free into that Roth IRA.

[00:16:24] And so you can choose to tax those dollars and to do that conversion. In favorable tax years. Some situations I see that makes sense is early on in a cold start or early on in a, a new business. Taxable income is lower. business deductions are higher. gross revenues, lower. And, and so these are opportunistic times to do something like that, where we can add on additional income onto the tax return. at a really favorable tax rate. or if we’re getting into retirement or early retirement, we’re often going to look at those early years of retirement. For opportunities to do those Roth conversions.

[00:17:01] And so if you’re going to do that, Make sure that that’s done before the end of the year, but also keep an eye on your custodians or your institution’s deadline to make sure that’s accounted for.

[00:17:12] I’d also add, if you had done what’s commonly called the backdoor Roth IRA contribution, meaning you contributed to a Traditional IRA. And then you converted those dollars into the Roth IRA. And if you realized, oh shoot, I have a bunch of pretax, Traditional IRA dollars here, and I need to roll those pre-tax IRA dollars into a 401k plan so that, that conversion piece doesn’t cause unnecessary taxation, if that’s you that rollover out of pre-tax dollars out of the IRA count into the 401k. Needs to be done before the end of the tax year. In which you did that conversion.

[00:17:54] So we’ve got a few weeks left and these things often happen with checks. So very often the IRA distribution is going to happen by check they’ll mail you or the 401k plan, a check made out to the receiving 401k plan, not to you, which is very important. The check would be made out to the receiving 401k plan for your benefit. Sometimes if it’s to you, then you’ll have to take it and mail it to the 401k plan and then they have to receive it and then process it.

[00:18:22] So. These things can take some time and whenever mail’s involved. Things can get mixed up or just missed or lost. So yeah, time is of the essence here. If that has to be done. You’ve got a few weeks left to make sure that that’s done. And if you have any questions on that, please let me know.

[00:18:38] A lot of people get confused on exactly how that all works. But keep that in mind, as well as an end of tax year issue to look at.

[00:18:45] One thing that often comes up, in terms of tax filing deadlines or tax deadlines is, is cost segregation studies.

[00:18:51] If you are a real estate investor, keep in mind that does not actually have to be done, meaning the, the cost segregation study doesn’t have to be done by the end of the tax year. I, it does have to be done before the tax filing deadline. So just keep that in mind. if you’re working on those particular studies with your advisors.

[00:19:09] So, that is sort of a high level. Quick bulleted list of some of the things to think about related to tax planning, obviously. End of your tax planning is a much broader topic. That’s, we’re, we’re not going to get into too much time into, in this episode. We’ve got some other episodes I’ll add into the show notes, so you can listen to those episodes as well, but just anything tax specific that needs to be done by the end of the tax year, making sure you are talking with your professionals and keeping in mind, any institution, internal deadlines to get that done.

[00:19:39] other things that don’t need to be done by the, by the end of the year or things like HSA contributions or. IRA contributions. so those things you can actually wait, like a profit sharing contributions. You can actually make before next April before more, next March. before that the tax finally deadline.

[00:19:56] BOI Reporting Deadline for the Corporate Transparency Act Put on Pause

[00:19:56] next thing is, is the BOI reporting from the Corporate Transparency Act and, up until a couple of weeks ago. this was something that for those business entities that existed. So for those practice business entities that existed if you’re 1099, and you have an LLC and your taxed as an S corporation. Or if you own real estate in an LLC, those business entities that existed before January, 2024, there was a hard end of year deadline to complete this BOI reporting or face stiff daily penalties.

[00:20:30] So. So the penalties were no joke. They were not messing around there. from what I understand, I I’m one of the slackers that were waiting until the very last minute. this is not something that’s very difficult. If you have a very simple business entity structure. doesn’t take up too much time, but there was this hard end of year deadline.

[00:20:48] And if you look at the amounts of businesses, That had actually completed this by this time, this year. Versus what was expected. There is a substantial gap between the two, meaning there were far less businesses that. that had actually done the reporting versus what was expected to be done by time this year. However, on December 3rd of this year, just recently. A US district court for the Eastern district of Texas issued a preliminary injunction on the reporting requirements, which essentially blocked enforcement on a national level.

[00:21:22] So what does that mean? Well, for now, temporarily anyways. We do not have to worry about this reporting deadline. the enforcement has been paused. Now this isn’t a permanent ruling. This isn’t a permanent injunction. This is preliminary as the court cases unfold. with this very well can be overturned in terms of, appeals and just going through the process.

[00:21:44] So. for now, it looks like us slackers don’t need to do anything in terms of a hard requirement. However, it probably makes sense to keep a very close eye on this in case this is reversed. And just be ready to file if needed. And of course you can also file, voluntarily if you’d like, or if your, if your attorney advises you to that’s something you can do just to be safe, but that’s something we’ve seen put a pause on.

[00:22:08] Right? So. in terms of court cases, you can add this to the student loan stuff that’s going on with the SAVE programin terms of court cases to keep an eye on.

[00:22:17] Check Your Levels of Liquidity

[00:22:17] All right. So those are some things that. That we were thinking about in terms of a hard deadline by the end of the year. contribution and wage and withholdings related stuff. Or tax-related, actions that need to be done before the end of the year. Those were hard deadline related. Now let’s talk about other financial health related stuff that doesn’t necessarily have a hard deadline. But I think it makes sense to at least review once throughout the year.

[00:22:44] So these are some things that I would review throughout the year for a client. But if you haven’t, this is a good time to sort of think and reflect and look back and just kind of review the health of your finances. And one of the things at this time of the year. So December, one of the things I’m reviewing for clients in December, It’s just the amount of liquidity in the life of the, of the optometrists. whether it’s an associate or, or private practice owner.

[00:23:08] And what I want to review is number one, do you have adequate liquidity? And that’s things you can get access to tomorrow. Do you have adequate cash? Do you have adequate taxable brokerage account? do you have adequate liquidity in your life for an emergency fund? Number one, do we have an adequate emergency fund? and upcoming purchases.

[00:23:28] So things that we are anticipating over the next year or so. Are we building up an up liquidity to prepare for that. And, that might be a home purchase that might be a commercial property purchase, which I’ve got several clients actually thinking about that right now. liquidity for practice purchases.

[00:23:44] So maybe you ha you’re, you’re planning on having roughly 10% of the, the value of the practice that you are purchasing in liquid assets so that you can. qualify very, very easily for borrowing. Do you, are you building up an up for that or do we need to increase that a little bit more? I have a score that I sort of track for clients on an ongoing basis, but this is a good time to just take a look.

[00:24:08] Okay. What is your cash savings? is it in a place that makes sense? Is it a high yield savings account? If you’re in a high state tax state like California. Does it make sense to use something like a US Treasury bond or, or bill or a US Treasury money market fund or ETF equivalent? So. Take a look at your liquidity.

[00:24:29] Do you have enough is in an appropriate spot for what’s for, or do you need to increase or decrease potentially the amount of cash you have on, on hand? It’s very possible. You have too much, right? That’s also the case as well. And keeping on your practice cash as well. Very often. One of the biggest things that practice others are asking me about is. What should I do with the cash in my business?

[00:24:53] How much can I take out of it? How much should I pay myself? And when that uncertainty happens, it’s very common to just see cash build up because they don’t know what else to do with that. and you certainly don’t want to keep more than necessary. Too much cash in the business because you don’t want to keep that cash. Subject to the liability of the business, but also it’s just unproductive at times.

[00:25:13] Take a look at your own cash in the practice as well. If you own a practice. And just to assess, is that adequate? rental properties. If you have several rental properties, do you have enough liquidity for unexpected expenses or maintenance within those rental properties as well?

[00:25:28] Reviewing Your Estate Plan, Beneficiaries, and Insurance Policies

[00:25:28] Another thing you should be reviewing are beneficiaries or just your estate plan in general. If you’ve not reviewed your estate plan for several years. This is a great time to pull that out. And see what’s in it, right?

[00:25:41] If something happened to you. Or your spouse, if you’re married, you pass away or you become incapacitated. What happens? And does that still make sense based on your goals and your family and the changes that have happened in your life, but something that should be really easy to check and something I’ll track for clients are the beneficiaries of all your different accounts. If you’ve not already, I think it’s super helpful just to build a ledger, a spreadsheet, some way for you to take a look at all of the different accounts that you have, how they’re titled. And who are the beneficiaries? Because that will tell you in a very quick, easy to look at way. Okay, this is where they’re going.

[00:26:22] If something happens to me. And is that still up to date? in a normal year, there shouldn’t be much changes. You’re just sort of glancing at it and making sure and confirming that it’s up-to-date. But if there are changes in your life, you’re going to be happy that either some professional’s keeping an eye on that for you or that you’re making changes where necessary.

[00:26:40] I’ve seen a lot of cases where there’s been, children. where there’s been children in the family and the old beneficiaries haven’t been updated where there’s been divorces. And the ex spouse was still a beneficiary. That is not a great situation to be in. we’ve seen cases where beneficiaries were not named.

[00:26:57] And in that, in that case, the estate would have been the recipient or when there’s been trusts created.

[00:27:03] And those trusts should have been the beneficiaries rather than who’s currently named. so those are things you just want to review and don’t forget your life insurance policies as well. One other thing to keep in mind is that there is not only a primary, but also a contingent beneficiary, the second line of beneficiaries, so that if something happens to both you and that primary, there’s a line of succession. And, if you have minor kids, it gets much more complicated because you have to decide how those minor kids should inherit. Should trusts be involved.

[00:27:36] Should there be a custodian named for those kids? so it definitely gets much more complicated when a minor kids are involved. if you have grandkids, grandkids, you want to review. Okay. If something happens to, to the parents, you’re. You know, to the first line of beneficiaries how should it go through their heirs?

[00:27:53] There’s certain things you can look into in terms of how it would flow down the family line. So beneficiaries, keep an eye on that. Keep tracking that. And then your estate plan as a whole, if you’ve not updated it for awhile, take a look to make sure that things are, as it should be, that things are titled appropriately. If you have taxable brokerage accounts, are those title appropriately based on the, the estate plan, if your house is titled appropriately, things like that, and keep an eye on that.

[00:28:21] And similar to that, you do want to take inventory of your insurance policies, right? What are the different insurance policies you have? What do they cover? What are the coverage amounts?

[00:28:31] and that could be life and disability that can be home and auto, liability coverage. umbrella insurance is something I commonly see, just sort of as a gap in the insurance coverages. So let’s just take inventory on what’s covered both in the business and personally. Just to make sure that you have adequate types of policies, adequate coverage. Or if there’s new, additional risks that have popped up in your life that are. that are, needs to be adjusted.

[00:28:54] Sometimes we see families grow. Sometimes we see new businesses. Sometimes we see, additional policies, additional vehicles, new drivers, things like that. So just make sure that your insurance policies meet the risks that are, that are occurring in your life.

[00:29:07] Student Loan Recertification Dates

[00:29:07] student loans.

[00:29:08] one thing that you want to keep track of is your student loan, recertification date, and many borrowers that I’ve come across or that I’ve, I’ve advised directly have seen their recertification dates, the dates that they need to re show. their income and family size and then recalculate their payments for the next 12 months.

[00:29:26] We’ve seen that push back into next year. And so you want to keep an eye on when that date is going to be. And then starts a plan for that next payment to be built into your finances. for many of you, especially if you’ve recently graduated. You might still be on a very low payment due to low income while you were students or low income while you just got out of optometry school. And so you might be surprised by the higher payment coming up over the next year or so if your payments or if your incomes come up.

[00:29:55] Review Your Portfolio for Opportunities to Improve

[00:29:55] A portfolio check. This is something that you should do at least once throughout the year. If you’ve not done it already, this is a great time to do it. number one are a couple of tax planning opportunities related to the investments. So if you have a taxable brokerage account, see if there’s any opportunities to harvest losses in that account, meaning that. for tax purposes. Sell outs of the, the investment that’s at a loss and then immediately buy another investment that is not substantially identical. And there are some rules too, to make sure that you’re following to make sure that that’s done correctly.

[00:30:30] I’ll include, again, a link to an episode I did on that in the show notes, but are there any opportunities to take advantage of those capital losses before the end of the year? or at the same time, if your income is low enough, are there opportunities to harvest gains at a really favorable tax rate?

[00:30:46] If your income’s low enough, it’s quite possible that, you can sell things at a 0% capital gains tax rate. So if your income is low, maybe you have a unusually low income year, or maybe you’ve just recently retired or whatever, whatever it may be. See if there’s opportunities on both sides of that to sell something, to take advantage of those losses or at a favorable tax rate.

[00:31:07] The other thing I want to keep an eye on are dividends and capital gains distributions.

[00:31:11] And December is usually a really heavy month for distributions in funds. Especially mutual funds, not quite as much, most often in ETFs. but you’re going to see both dividends distributed as well as capital gains distributions. From those funds that do end up on your tax return.

[00:31:29] So if that’s the case, keeping on what you should expect with your investments. Are your investments going to be kicking off a substantial amount of dividends, especially non-qualified dividends, which are a particular type of dividend taxed at ordinary yucky tax rates, just like all your other income. Qualified dividends and long-term capital gains have more favorable tax rates.

[00:31:53] So are they kicking off a lot of interest or, or non-qualified dividends? Or is there a lot of capital gains activity it’s going to make, which is what you’re. And are you expecting a very large capital gain distribution? That’s something you want to keep an eye on. If you are doing very specific tax planning, you want to know what is expected to end up on your tax return. And that’s also a great place to just take a look at is your taxable investment account.invested in a way that’s tax efficient.

[00:32:23] So when I’m working with a client, I’m looking at all of the different accounts going towards the same goal. As one big portfolio, one big mix.

[00:32:32] So, you know, one big pie and each account. It’s just a separate mix, a separate piece of that pie. And knowing they all have different tax characteristics, you might have. for example, if we’re saving for retirement for longterm financial independence, you might have a 401k. You might have a Roth IRA. you might have a taxable brokerage account.

[00:32:52] Each one of them has different tax characteristics. Some dollars are pretax, some dollars, a Roth after tax. Some dollars are taxable. And so. You want to make sure that the most appropriate investment option. Is in the most appropriate accounts. Keeping in mind taxes and future growth. So, if you have a taxable brokerage account, you want to take a look to say, okay, is this invested in a way that is tax efficient?

[00:33:18] Meaning. Number one, do you have a really active. actively trading mutual fund in that account. And is it kicking off a lot of capital gains income? That is a really high hurdle to get over for that active manager. so that’s, that’s something you want to keep in mind. What kind of trading activity is happening in that mutual fund? in order to create those capital gains. Is it a mutual fund or an ETF?

[00:33:42] Generally speaking. This isn’t, this isn’t guaranteed across the board, but generally speaking ETFs, just due to the way they function, the way they work are expected to be more tax efficient than mutual funds sometimes substantially so. very often you’ll see no capital gains distribution in ETFs, where with an equivalent mutual fund, you will. so that’s something I’d take a look at.

[00:34:04] do you have things like taxable bonds or REITs inside of that taxable brokerage account? which is kicking off the type of income that’s taxed that. Less favorable tax rates. So take a look at what’s in these accounts and try to situate your investments to be as tax efficient as possible. So those bonds, for example, might be better situated in a pretax retirement account.you want, you want to take inventory of that?

[00:34:29] is your portfolio in balance, based on the mixes of different categories of investments you’ve wanted to target. Stocks versus bonds, US versus international. Large versus small growth versus value, all different characteristics. Based on the overall percentages you’re targeting.

[00:34:47] Is it still in balance or is one category much higher than the other? and if so, does that make sense to trim back to those targeted levels? Meaning trimming what’s high and buying into what’s low to bring that back into balance. we’ll call that rebalancing, right? Just sort of keeping your, your investments within the risk and reward characteristics that you’re originally agreeing to originally targeting.

[00:35:11] And then lastly, does your overall mix of those categories of those characteristics. Does the overall mix of investments make sense for your investment goal?if you’re investing towards longterm retirement and does that mix of stocks versus bonds? And different categories of stocks and bonds.

[00:35:27] Does that make sense for your long-term investment goals? Or are you invested? Maybe you have a shorter term investment going you’re, you’re invested too heavily aggressive, invested too aggressively. Maybe you’re taking on more and certainly than you should, or maybe you’re taking on too little risk for the long-term investment goal. that’s something you’ll want to review and just kind of keep an eye on over time.

[00:35:48] Reviewing Cash Flow and Financial Progress

[00:35:48] Last two things we’ll talk about our cashflow and progress towards goals. And number one is that’s a good time to take inventory of your cashflow, right? We’ve gone through the year. What’s come into the household, what’s gone out of the household and where’s it gone to, and what’s left. Does that align with your, what you were planning?

[00:36:07] Does it align with what’s valuable to you? Are there any surprises, right? Are you spending much more or much less than you planned? you know, if there’s a vacation target, did you take the vacation this year? Are you spending dollars on things that are valuable to you?

[00:36:21] So it’s a good time to take inventory of your cashflow throughout the year. And then what I like to look at are measures of cashflow health. So how is your savings rate. You know, based on the income that’s coming into the household, what percentage of that are you saving towards longterm financial independence? Is that savings rate healthy?

[00:36:38] Is it adequate for your retirement goals? What is your debt rate? How much of your cashflow is going towards debt payments? Is it too high? Do you have a lot more room to use debt prudently? What does that look like? Right. So you can, you can take a look at these percentages. And say, okay. Are these adequate for the goals that you are aiming towards?

[00:36:57] And then lastly, are you making progress towards your goals?

[00:37:00] And, and sometimes again, there’s very specific things we’re saving towards either in the short term or the longterm. Not always, sometimes we don’t have goals. We just want to make the next best decision that we, that we can financially, but sometimes you do and it could be a savings goal for a particular goal.

[00:37:15] Are you on track for that savings goal? Kind of what we talked about earlier in terms of liquidity. And then, in terms of financial independence or are you making progress? How much progress? Is that progress you’re you’re feeling good about?

[00:37:26] has your net worth grown?

[00:37:28] How has it grown? How has it changed? Is it due to assets growing? Is it due to you paying down debt? How has your net worth changed?

[00:37:35] So, this is a really good time to just take inventory of your own goals, both in terms of the family, in terms of financial goals. In terms of how you want to spend dollars proactively. In terms of the business, what do you want to accomplish over the next year and beyond? And how can you put yourself in the best position possible to get there?

[00:37:55] And so as we get to the end of the year, can’t believe we’re already in December.

[00:37:59] These are some things to think about sort of a checklist to take a look at and take inventory of. To make sure that you’re taking actions on things that needed to be done before the end of the year. But also just assessing your own family’s financial health and your own businesses practices, financial health. And to make sure that there aren’t any clear opportunities for improvement, that things are moving along as expected and that you are seeing progress because ultimately what we’re looking for is making that next best financial decision. And just watching and monitoring progress as we go.

[00:38:30] Hopefully that was helpful.

[00:38:31] Please reach out. If you have any questions, you can email me at podcast@optometrywealth.Com. there’s also a link in the show notes. If you just want to send a text to my podcast here. I cannot reply, but if you just have, thoughts, questions, feedback, things you want me to talk about or answer in a future episode, I’ve been sorta compiling questions for. Q & A episodes that I might do in the near future.

[00:38:53] If you’re enjoying the podcast, please leave a review. It’s super helpful for me to see that feedback to see what’s what you like, what you don’t like, what can be improved. And to get this education into the hands of more and more optometrists.

[00:39:06] Ultimately the goal here is to try to make this as valuable as possible to you and your peers and to the Optometry profession. I appreciate your time. Thank you for listening. Have a great rest of your year. and we will catch you on the next episode, in the meantime, take care.

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