266 | 2024 End-of-Year Routines to Make You Rich(er)

Hilary Hendershott: Welcome back to Love, your Money®! This fall, we aired our 7 Steps to Wealth series here on the podcast, and if you made it to the final of those 7 Steps, you know how important it is to protect your wealth. So today we’re talking about end of year routines and practices that precede wealth. They enable you to build wealth, and that wealthy people adopt and embrace to protect their financial legacy in the years to come.

Hilary Hendershott: In other words, whether you’re early on in your wealth-building journey or you’ve been at it for a while, this is your chance to do something I know your future self will thank you for.

Hilary Hendershott: As I’ve said before, you can make a lot of money in any given year, and your bank account will be high, but if you don’t have a set of habits and routines to check in on your money, monitor it, organize it, categorize it, give it roles and responsibilities in your life and ensure it’s protected, don’t be surprised if you find it’s quickly disappeared on you. It has happened to me.

Hilary Hendershott: Year-end wrap up of financials just isn’t for businesses. And I know many of you have wondered what sets of activities financially successful individuals take on when it comes to their money routines, particularly at the end of the year, because you always ask me! I get emails and messages on social media asking if I have tips for ending the year on a solid financial footing.

Hilary Hendershott: So like I do in most years, I’m going to share some strategies you can employ and make sure you finish 2024 on solid financial ground, so you can start ‘25 with clarity, renewed energy and the confidence that comes from knowing you’ve taken care of business.

Hilary Hendershott: Today we’ll be exploring a range of financial routines and end-of-year best practices taking into account both the perspectives of individuals and business owners, from tax efficient strategies to charitable giving, health insurance, Roth conversions and more. We’re going to run the gamut. There’s lots of numbers in this episode, so if you want to get out a pen and a piece of paper, you should do that. You can also download the transcript after you listen.

Hilary Hendershott: This is, of course, for informational and educational purposes only. Should not be construed as specific investment, accounting, legal, or tax advice. You should always consult your financial advisor and tax preparer before implementing strategies.

Hilary Hendershott: Without further ado, get your favorite note taking tool ready, and let’s dive in.

Hilary Hendershott: First, we’re going to talk about personal finances. Everybody has personal finances. If you own a business, you also have a business. That’s a different ecosystem, but we all have a personal financial ecosystem.

Hilary Hendershott: Let’s kick off this conversation by chatting about everyone’s favorite topic, insurance. I’m just kidding. I know it’s not the most exciting topic to lead with, but I figured we’d get through the critical but unentertaining section first.

Hilary Hendershott: Insurance, I promise, is a non-negotiable when it comes to protecting your wealth and your health. The biggest source of financial debt, and even bankruptcy in this country is medical debts due to insufficient insurance coverage, and it’s really heartbreaking for me to see it.

Hilary Hendershott: So to protect your loved ones’ assets and well being, you definitely need to have health insurance. Wealthy people have health insurance. The mass affluent have health insurance. Let’s go out. Let’s do it. Get health insurance. Okay.

Hilary Hendershott: The end of the year is a great time to review your personal insurance situation and decide whether or not you should adjust your coverage.

Hilary Hendershott: Do you have the optimal health insurance plan for 2025? If your employer allows changes, do you know the deadlines to sign up for those? I mean, you probably know that you can’t just run around changing your coverage all the time, but they’re going to be events in your life that enable you to make changes.

Hilary Hendershott: There’s an open enrollment period annually, so make sure you know those dates for your group health plan. Don’t let an administrative oversight sink your financial plan.

Hilary Hendershott: Speaking of your health, I know people have a lot of questions about these kinds of accounts. That’s FSAs, and HSAs. An FSA is a flexible spending account. If you have that, make sure you use up those balances before year end, because those dollars do not carry over to the next year. The FSA is a use it or lose it type of account balance.

Hilary Hendershott: Contrast that with the HSA, which is a health savings account. Contributions to your HSA do carry over pretty much forever, so you don’t need to worry about spending that account down.

Hilary Hendershott: That account is designed for people with high deductible health insurance plans, and if you have an HSA available through your employer plan, you’ll want to verify that you’re on track to maximize your 2024 contributions to these accounts by December 31, okay? The maximum contribution amounts for 2024 are $4,150 for if you’re only insuring yourself, or $8,300 if you’re insuring your family.

Hilary Hendershott: While we’re talking about insurance, when’s the last time you checked if your home and car were adequately insured for replacement and liability coverage? Do you have a new driver in the household? Or will a new one be coming in the next year? Now is the time you can price that additional insurance so you can save for it and make sure there are no surprises, or make other plans if it’s too expensive to insure another driver. Insuring a teenage driver can be very costly. Okay, so be prepared.

Hilary Hendershott: There are a few other insurance related details that are worth looking into and very easy to miss, because, well, need I say it again? Nobody’s excited by insurance, except insurance agents.

Hilary Hendershott: But additional things to consider, do you need to add or remove a car, a motorcycle, or a boat from your policy? As an aside, you know, my family and I sold cars last year–we sold two of our cars, and it was amazing to me that I almost forgot to un-insure them. So I almost kept paying for the insurance month after month. Luckily, Allstate gave me a month rebate.

Hilary Hendershott: But anyway, you have to remember to tell people you no longer have that car. Aside from health and vehicle insurance, have you reviewed your life insurance coverage? If you’re a parent of minors, of course you need a term life insurance policy to protect your spouse, partner, or children in the event that you’re no longer walking on the planet.

Hilary Hendershott: I do know that the cost of insurance premiums can be hard to swallow, but insurance exists because the cost of the potential loss is much higher than the premium.

Hilary Hendershott: And yes, the details are tedious and it’s easy to push to the bottom of your to-do list, because it can seem like I’m never going to make an insurance claim. But if you wait until you need insurance to get it, that’s, by definition, too late.

Hilary Hendershott: So I’m not going to go down the rabbit hole of horror stories from being under insured or uninsured, but I did share a couple of them on episode 261 of the podcast, which is all about protecting your wealth. So if you want to learn from other people’s experiences, head to hendershottwealth.com/264. Those stories aren’t my favorite to share, but they are the most effective in getting people to take the actions they need to to protect their wealth.

Hilary Hendershott: Okay, done with insurance. Moving on from insurance. Let’s talk about retirement contributions, because they are a big driver of personal wealth accumulation. They’re also one of the largest tax deductions for most people.

Hilary Hendershott: Folks, a tax deduction is literally free money to you. So don’t overlook these. They come with many year-end deadlines. So keep these in mind.

Hilary Hendershott: I’m talking about the kind of retirement accounts you’ve most likely heard of. We have traditional IRAs, 401(k)s, 403(b)s, 457s, simples, Roth IRAs, you get the point, right?

Hilary Hendershott: I’m going to talk a little bit about all of these kinds of accounts, and you can pretty much put them in two buckets, the Roth IRA or Roth 401(k) is kind of stand alone. Okay. So that’s a separate bucket. Then you have the other bucket, traditional IRAs, 401(k)s 403(b)s, simples, SEPs–all of these other accounts function in the same way. We’re going to talk about those first.

Hilary Hendershott: With those accounts, you get to deduct the contribution when it goes in–so you don’t pay taxes on the income that you put into the account in the year that goes in. And then you don’t pay taxes on growth. And then you do pay ordinary income tax on distributions after your age, 59 and a half.

Hilary Hendershott: The opposite of that, but similarly valuable, is a Roth IRA, or at this point, many of you have a Roth 401(k) option, where you do pay income tax on contributions in the year the money goes in. And then, again, you don’t pay taxes on growth, and then you never actually have to pay tax on that money again, because the distributions are tax free.

Hilary Hendershott: So these two types of accounts can save you a lot of money on taxes. And I know I don’t want to pay taxes when I can legally and ethically avoid them. I don’t want my clients to and I assume you feel the same.

Hilary Hendershott: So if you have access to a 401(k), 457, 403(b), your employee contributions must be made before 12/31. There’s no break on that. They absolutely do not count for this calendar year if you make them late. So for most of us, this comes out of payroll.

Hilary Hendershott: So you actually have to be making these contributions throughout the year, and you can’t wait until the end of December to start. The maximum contribution for 2024 is $23,000 for employees that are younger than 50 and $30,500 for those 50 and over thanks to a $7,500 catch up contribution.

Hilary Hendershott: Because why? Congress thinks you’re getting close to retirement and you maybe need to catch up. You might want to take them up on that opportunity.

Hilary Hendershott: Also, consider increasing your contribution amounts for next year, because the base 401(k) contribution amount for ‘25 was increased from $23,000 to $23,500. So if you’re under age 50, you can save $500 more. The catch up amount, however, if you’re age 50 or over, has not increased. It remains at $7,500 bucks.

Hilary Hendershott: However, under a change made in the Secure Act 2.0, a higher catch up contribution limit applies for employees aged–this is very specific–60, 61, 62, and 63 who participate in these plans.

Hilary Hendershott: The higher catch up contribution limit is $11,250 instead of $7,500 which means participants can contribute up to a total of $34,750. Unless you have a photographic memory at this point, I’m sure you’re going to want to be either taking notes or downloading the transcript.

Hilary Hendershott: We’re getting a lot of good information in this episode. Unfortunately, some of these rules are very, very specific and technical. I’m happy to report them to you.

Hilary Hendershott: If you’re contributing to an IRA instead of a 401(k), you can only contribute $7,000 for 2024 and that number will remain the same for 2025. So it is a lot more that you can put into a 401(k) versus an IRA. And the 401(k) is the one that’s associated with an employer, and the IRA isn’t. You can open an IRA at Vanguard or Schwab. If you’re over age 50, you can contribute an additional $1,000 catch up contribution.

Hilary Hendershott: There are income limitations to make these contributions. So your ability to contribute to these accounts phases out as your adjusted gross income, which a tax preparer will calculate; it lands at the bottom of your form 1040 federal tax return. But it’s important to review those income limitations first before making the contribution. You do not want to be in the position of having excess disallowed contributions.

Hilary Hendershott: You may also be eligible to contribute to a traditional or SEP IRA or even a Roth IRA. These contributions can be made up to the tax filing deadline or when you file your tax return, whichever is earlier. So there is a little wiggle room with those, and I, myself have taken advantage of that wiggle room in the past.

Hilary Hendershott: If you don’t make a Roth IRA contribution for 2024 and you want to, don’t file your tax return until you make it and you’re good. But the employee 401(k) deferrals are absolutely due by December 31.

Hilary Hendershott: If you are the sole employee of your business, you can consider a quote, unquote, 401(k) light. This is a solo 401(k), also known as a solo(k). It comes without the administrative burden and cost of a standard 401(k), which is something you would open for you and your employees. And you can potentially contribute and deduct up to $69,000 total.

Hilary Hendershott: And of course, the 401(k) and IRA aren’t the only places you can save for retirement. If you’ve capped out contributions, you can still take any excess cash flow and save it in an after tax account. So there’s no tax benefits on these accounts, but it’s probably better to save it than spend it if you don’t need to spend it on something you need or want. Okay?

Hilary Hendershott: So no matter how you make it happen, whether it’s by earning more money or trimming your lifestyle spending, increasing your savings amount each year–it seems so simple and so unnecessary–but it is magical. If you commit yourself to this habit of keeping your lifestyle expenses at one level that make you happy and increasing your savings every year, it really is magical.

Hilary Hendershott: After a series of years, you’ll look at your net worth and go, I am a wizard. I’m so glad I did this. You have to remember, your wealth is measured by how much money you get to keep, not how much you spend.

Hilary Hendershott: I remember the first time I realized that… seemed like a magical situation. I can’t believe I never had the thought before. So I like to say it here loudly and often: Keep as much money as you can.

Hilary Hendershott: Before we move on from talking about retirement, I want to remind you that required minimum distributions, which we often in the industry call RMDs, must be taken before December 31 each year.

Hilary Hendershott: RMDs are–just like they sound–a mandatory retirement account distribution. Congress let you have all that tax savings during your working years. They’ve decided at your age, so it’s 72 for some, 73 for others, they want their money back, so they’re going to make you distribute money from your IRA and pay them the ordinary income tax on it.

Hilary Hendershott: Missing this deadline can result in penalties, which is definitely not the kind of surprise you want as you ring in the new year. For those born before 1951, your RMDs began when you reached age 72. And for those born in 1951 or after, you must start your RMD when you reach 73. RMDs are a percentage of the balance of your relevant account on December 31 of the last year. If you have more than one retirement account, it applies to all of them.

Hilary Hendershott: If you fall into that camp, you need to contact your financial institution or financial advisor to make that calculation, because it’s specific to you, your age expectancy, and your account balances.

Hilary Hendershott: You may also have RMDs if you inherited an IRA. Boy, I’ll tell you, these can get complicated. And those would be based, for the most part, on the birth year of the person you inherited the account from. If you inherited an IRA since 2020 and you haven’t had to take an RMD, you will need to start taking those in 2025.

Hilary Hendershott: The balance of the account has to be distributed fully to you within 10 years of the original owner’s death, unless you are less than 10 years younger than the original IRA owner.

Hilary Hendershott: Spouses and siblings are the most likely people to be in this position. I just want to reiterate the rules on this are really unnecessarily complicated. Just being totally honest with you, I myself would not want to go this alone. I would definitely engage a professional to make sure you’re doing that right if you inherited an IRA from someone.

Hilary Hendershott: If you are of the age where you need to take RMDs, one of the best methods of both decreasing your tax bill and giving money to charities you love is called the qualified charitable distribution, otherwise known as the QCD. Ask your financial advisor about that one if you have charities you love and are looking for ways to give this year.

Hilary Hendershott: Basically, you can give the full amount of the distribution without paying tax on it, and the charity gets to receive that money. So you avoid paying tax to the federal government and give what would have been the tax to the charity. It’s a nice thing.

Hilary Hendershott: If you love charities or people, like I do, and you’re not required to make RMDs yet, you can consider other gifting strategies, such as maximizing your annual gift exclusion to individuals, or creating a donor advised fund for charities.

Hilary Hendershott: I personally like both of these options, and I do use them generously. I love earning money, and I love seeing my account balances grow, and I also love giving away amounts of it that I can afford to give. It is a reciprocal, loving relationship with my money and my people.

Hilary Hendershott: You can, of course, give philanthropically of your time and money, but Congress is only giving you a deduction for giving your money. So definitely keep your receipts, maintain records, retain copies of checks, and always let your tax preparer know about the donations or gifts. This is your job.

Hilary Hendershott: Giving to the charity does not give you the deduction. That information has to get to your tax preparer. They all need to be manually entered into their tax software so they make it onto your tax return. So don’t assume that anyone else is going to tell your tax preparer about those transactions.

Hilary Hendershott: The final piece of information you need to know about charitable donations is that, just like 401(k) contributions, they absolutely must be made and received by the charity by December 31 in order to count for the 2024 tax year. So don’t put it off.

Hilary Hendershott: For me, I print PDFs of every single tax or taxable thing I do throughout the year–and by print PDFs, I mean, you know how your computer does it, so it just makes a PDF on the computer. Like, I don’t print a piece of paper, okay? But I put it in a folder in my file storage tool, which is called Box.com. And that folder is called 2024 taxes. So right now that file is full.

Hilary Hendershott: Then, at year end, all I have to do is go in that folder and make sure that my tax preparer gets those PDFs, right? My tax preparer has a place where I upload them to him and I just copy and drag them all over.

Hilary Hendershott: It’s that easy, and that’s because I do that constant gardening throughout the year. I do not leave things in in baskets. I don’t not record them. I don’t make a donation without getting the confirmation receipt of that donation. And then I just put it right in that folder.

Hilary Hendershott: That’s that’s the whole action for me, I don’t stop in the middle, okay? Because not doing that means I don’t get the deduction for it, and I just don’t want that anxiety. So definitely do not miss those tax deductions because you forgot to keep the record or tell your CPA.

Hilary Hendershott: Honestly, and I think this isn’t properly published or advertised or promoted or educated, but a lot of effective interaction with your tax preparer, a lot of getting the most accurate tax return and the most deductions, is making sure that person gets all of your files and records. No one else can collect those for you, which is why I’m here today telling you to do that thing already. Okay?

Hilary Hendershott: Next item on today’s agenda, a couple of additional strategic tax moves you can make toward the end of the year, include harvesting capital losses and Roth conversions. Let’s start with the first one.

Hilary Hendershott: Consider harvesting any losses that you might have in your after tax accounts. And you can do this throughout the year. But let’s say, for example, you bought a stock for $100 now it’s worth only $80. So it’s declined 20%. You have $20 of unharvested losses. If you harvest those losses by selling the stock, now you’ve locked in the losses. You can wait 31 days and repurchase the same stock.

Hilary Hendershott: You know, truth be told, in our practice, if we’re harvesting losses for a client, it’s more than $100 and we don’t leave the money in cash for 31 days. But you do have to buy something materially dissimilar, or you can violate what’s called the wash sale rule.

Hilary Hendershott: But point is, you’ve harvested the losses, and now after 31 days, you can, if you want, repurchase that same stock, ETF, or mutual fund, or you can diversify and buy a better investment.

Hilary Hendershott: But the real point is that now you have losses that you can use to cancel out harvested gains that you’ve already realized this year or in the future.

Hilary Hendershott: So it’s a real silver lining of having temporary declines in stock values in your account. That means, if you have $20 of losses and you have $20 of gains that would have cost you $5 or $10 in taxes, they actually cancel each other out, and you owe nothing. And then if you don’t use the loss this year to offset a gain, you can deduct up to $3,000 of losses this year, and any losses that can be carried forward to next year.

Hilary Hendershott: So I use that term ‘silver lining’ to describe carry forward losses. Because again, no one loves the idea of losing money in the stock market, but it is part of the process, and harvesting losses at the time can really help you save money in taxes later.

Hilary Hendershott: Okay, the other strategy I said I would talk about is a Roth conversion, which involves converting a traditional IRA into a Roth IRA. The entire amount of the conversion is taxable income in the year you complete the conversion, so you do need to be prepared to pay that bill if you do this.

Hilary Hendershott: We’re sometimes doing $100,000 conversions for clients, even more–multiple $100,000 conversions. Let’s just say, in simple terms, if you convert $100,000 out of a traditional IRA, you know that might be a $25,000 tax bill or more, okay? But the benefit of a Roth conversion is the potential for long term tax benefits.

Hilary Hendershott: By paying taxes on the converted amount up front, you can position yourself for tax free withdrawals in retirement. So any future gains, earnings, dividends, and withdrawals from the Roth IRA are not subject to tax.

Hilary Hendershott: I do want to say something about Roth conversions and Roth accounts in general here, and I’ve said this before, but I still see people making this math mistake, so I’ll keep talking about it.

Hilary Hendershott: It really does seem to me that, in general, the media and maybe the DIY investing public, and I think, to be honest, even most financial advisors and certainly some CPAs have an incorrect thought about Roth accounts, which is that they are always, hands down, in every scenario, better than a regular IRA, but they’re just not.

Hilary Hendershott: The simple fact of the matter is that Roth accounts are better for you in retirement if your income tax bracket is higher in retirement than it was in the year you convert it.

Hilary Hendershott: It’s a math question. It’s called a future value calculation. The converse of a future value calculation is a present value calculation. You can run it either way, but I’m not going to talk through that math fully here, because this episode is about end of year financial routines and not Roth conversions.

Hilary Hendershott: I’m just making the point: Don’t pursue a Roth conversion because you think it’s always better than having a balance in a 401(k) or a traditional IRA. It’s not. You can listen to episode 234 to learn more about Roth conversions. I talked about that fully there, and I’ll put the link for that in the show notes.

Hilary Hendershott: One more benefit with the Roth IRAs is there are no required minimum distributions which does give you more flexibility and control over your retirement income.

Hilary Hendershott: Like some people find themselves in a position where their traditional IRA balances are so big relative to the money they’re taking out to live on in retirement, that they’re actually forced to take out excess distributions and pay income tax on those distributions, right?

Hilary Hendershott: That’s the potential downside of RMDs and Roth IRAs don’t have those. So that is a clear advantage.

Hilary Hendershott: I think the real situation to pursue, and what my team of advisors and I are currently having our clients pursue, is having a mix of balances in both kinds of accounts, traditional IRAs, Roth IRAs.

Hilary Hendershott: And what having both IRA and Roth IRA balances really does for you is it gives you agility and control in retirement. You’re likely to have a long retirement, and the tax codes and tax brackets you’re subject to, just like the presidential administrations, will change. The kindest thing you can do for your future self is start thinking about those strategies now so that you have them in place and don’t have to worry about it down the road.

Hilary Hendershott: All right, moving on from retirement accounts, let’s talk about how wealthy people relate to their net worth, which you can find on your net worth statement.

Hilary Hendershott: In a wealth building journey, knowing your net worth is important, but really like managing it so it’s consistently going up. We want our net worth to be going up.

Hilary Hendershott: In order to know if it is or not, you need to track and update that number periodically. And if it’s not going up, and we’re not in like some big economic recession, you should probably make some changes.

Hilary Hendershott: Either way, your net worth is the balance of your assets minus your liabilities, and it’s the most important number in your financial life. If you’re not already tracking your net worth over the course of the year, consider adding it to your end-of-year financial routine.

Hilary Hendershott: My clients have a wealth portal that updates their net worth automatically, but you can independently track and update yours in Excel or Google Sheets or another software.

Hilary Hendershott: To figure out your net worth, you want to make a list of your assets and a list of your liabilities. On the asset side, that would be the balances of real estate owned, your investments, your employer based saving plans, any stock options you own, and maybe savings accounts.

Hilary Hendershott: On the liabilities side, you want to add credit card balances. Well, you’re adding positive, then you subtract the whole right? So it’s a net negative. Include credit card balances you don’t pay off monthly, student loan debt or mortgages, and other personal loans that you have outstanding.

Hilary Hendershott: There are a few assets that I don’t tend to include in my net worth statement that I see a lot of people adding. I do not put my checking account balance because that’s cash. I’m going to spend it. It’s basically gone. I also don’t include the value of my cars, jewelry, or clothing, because I’m not going to sell that stuff and use it for spending.

Hilary Hendershott: Those are assets that I own, and they’re in use, and I plan to keep them, but I’m not going to turn them back into money.

Hilary Hendershott: I also don’t include my car, because unless I’m in some kind of unfathomable financial sell off position, I’m definitely never going to spend my car. It’s a consumption asset. I’m going to drive it until I sell it, and then I’m going to use the cash proceeds from the sale to buy my next car. So that money is in play. It’s on the playing field, as they say.

Hilary Hendershott: I also track home equity separate from investable assets from my clients, because most of us will not be spending our home equity in retirement. So in practice, your assets are in two different buckets. There’s the value of your investable assets that are earmarked for your financial freedom or spending in retirement, and there’s the value of your overall net worth, including assets you don’t plan to spend, like your home or other real estate.

Hilary Hendershott: Bottom line, assets minus liabilities equals net worth. It’s important to know that number so that you can see if you’re on track for your financial goals and living a life that you truly love. And if you’re not on track, you can make a plan to course correct.

Hilary Hendershott: Okay, that is a quick rundown of the year end financial checklist I use for personal accounts. Now let’s switch gears and talk about end of year financial routines for profitable and successful business owners.

Hilary Hendershott: If you don’t have a business, you may choose to fast forward a few minutes, because for now, I’m talking strictly to business owners. That said, if you have a few minutes to listen in, there are definitely money principles and practices for businesses that are relevant to personal finances. And who knows, maybe you’ll find yourself inspired to start your own business someday.

Hilary Hendershott: The next few minutes can give you a little preview of what could be applicable to you in the future.

Hilary Hendershott: Let’s start with bookkeeping. Go ahead and pull out that 2024 P&L. That’s a profit and loss statement, and also your balance sheet. Those are the two keystone bookkeeping reports.

Hilary Hendershott: I know many of you don’t have a regular routine of reviewing these, and when you do, you really don’t know what to look for. So let’s dig right in.

Hilary Hendershott: First, take note of the net income line at the bottom of your P&L. Are you profitable? How much? How does that compare to last year? And how does it compare to the goals you set for yourself as the owner and CEO of that company?

Hilary Hendershott: Trends are important to notice, and the best thing to do is really come to terms with the actions you or your team took or failed to take that led to those numbers, good or bad.

Hilary Hendershott: Maybe you’re celebrating positive numbers and growth right now, which means you’ll want to ensure that you’re taking the same successful actions in 2025 that you took this year.

Hilary Hendershott: Maybe you’re feeling regret right now, which means you need to find new and different ways to ensure your company’s profit generating activities get baked into the calendar, the routines, and the schedule.

Hilary Hendershott: For more on profit generating activities. I recommend you listen to episode 209 of this show, or check out the blog post about the Profit Pyramid. We’ll link to both in the show notes for today’s episode.

Hilary Hendershott: So let’s dig into the details a bit. Are your accounts linked in QuickBooks or your bookkeeping program? So think about cash transactions–PayPal, Venmo, Cash App and other ways you spend or accept money that might not be tracked.

Hilary Hendershott: It is really important to make sure everything is being tracked, categorized, and retained. I use QuickBooks, and if a new account is opened or a savings account is added to save more profits into, I need to make sure my bookkeeper knows about this account to track transactions.

Hilary Hendershott: And don’t forget about that new credit card you open to get those travel points. This meticulous tracking not only ensures accurate financial reporting, but also helps you identify all of your business deductions and possibly identify cost savings areas.

Hilary Hendershott: Also, your bookkeeping tells the story of your business. If your bookkeeping isn’t accurate, you can’t know the actual story, right? Like you live in your head about how it looks and how busy you are and how many clients hired or fired you this year. But the real story is in those books. And really learning how to read those is extremely valuable and strategic as a business owner.

Hilary Hendershott: Pro tip, ask your bookkeeper for a list of recurring monthly or quarterly expenses. Maybe you forgot about a software you don’t use anymore, or a vendor that you’re still paying for services but you’re not actually using them. My team and I actually have this as a quarterly routine.

Hilary Hendershott: So we have a list of quarterly routines that we do. We make a list of any recurring expenses and we review them. It’s been incredibly valuable.

Hilary Hendershott: In episode 262 of this podcast, I shared the story of someone I know who trimmed $1,300 a month of unused or redundant subscriptions and services. So get those unnecessary repeating payments out of your accounts.

Hilary Hendershott: Once your P&L and balance sheet are complete and accurate for the year, you’re ready for that tax prep meeting with your CPA. I highly recommend that you do yourself a favor when it comes to reports, tax returns, quarterly statements and the like. Make a habit of storing these electronically in a place that’s secure and automatically backed up to the cloud.

Hilary Hendershott: Like I said, I use Box.com. I can track my whole financial life back a decade or more very easily, but only because I stored these reports and information when they showed up in my life and or my inbox.

Hilary Hendershott: So we do have a saying at Hendershott Wealth, and that saying is, “Handle money first.” If you have a backlog, you can get that done in December, and then in 2025 make a habit of doing it as a matter of routine, either in the moment, or at the very least, as a monthly money date.

Hilary Hendershott: Don’t overlook these things. It’s too easy to let things pile up and get confusing and miss them.

Hilary Hendershott: It’s really easy to name a file and file it in the right place when you remember exactly what you did with that transaction, why you did it, and you have a system for that. You can use Box.com, you can use Dropbox, Google Drive, Notion, or any number of digital homes.

Hilary Hendershott: The most important thing is that you put those documents in a file folder immediately when you see them. That really is like the linchpin. So simple. Because if you go back three or six months later, you might not even remember what it is. You might not remember that it’s relevant, or why you did it, or how to account for it.

Hilary Hendershott: So again, truly, handle money first.

Hilary Hendershott: When it comes to organizing these documents, I also name the files in a specific way. For example, when I make a tax deductible contribution to a charity, and in return they send me that receipt I told you, I always get, I name that receipt my last name, so that the tax preparer knows whose file it is, the date of the contribution, donation, including the year, right, like the year is critical, the amount of the contribution and the name of the charity.

Hilary Hendershott: So I can just go into that folder where I store them and easily calculate the total of my annual contributions with my eyes, without opening any files. It’s a system that is simple, elegant, and designed to support me, which is exactly what I want.

Hilary Hendershott: Also, collect on all open invoices this month, folks, money lovers. Go collect on invoices. I can’t tell you how many times the folks I’m working with really need to be encouraged to go ahead and collect.

Hilary Hendershott: Get your money. It’s important that you keep that oxygen to your business flowing, otherwise you may find yourself sputtering or even choking on lack of cash flow if you’re not collecting invoices. I’m particularly proud of that metaphor.

Hilary Hendershott: Next up, do you owe anyone a year end bonus or commission? Gotta pay people. Don’t forget to pay your employees before 12/31 so that it falls into the correct tax year. Take the time to verify your payroll and independent contractor records, because errors can be costly.

Hilary Hendershott: Did you report all the wages you pay to your payroll provider so they’re included in your team’s W2s or 1099s? Think about cash bonuses or client gifts over the gifting threshold. Life insurance premiums you may have paid for yourself through the business and Venmo or PayPal payments to contractors.

Hilary Hendershott: There’s lots of ways we can pay people. You just have to make sure it’s all getting reported.

Hilary Hendershott: Make sure you’re reporting all these things, either to your payroll provider or to the IRS via your tax return. Accurate payroll management is crucial, not only for employee satisfaction. Funny that, right, like they work for you, they expect to get paid. Yes, you must come through. But also compliance with tax regulations.

Hilary Hendershott: You must issue a 1099 MISC, for miscellaneous–1099 MISC is the short term–or a 1099 NEC, depending on the type of payments to any individual or unincorporated business entity to whom you have paid $600 or more in the calendar year for services rendered or not.

Hilary Hendershott: Simply said, if you’ve paid someone $600 or more in 2024, you have to issue them a 1099, so that from the government’s perspective, that’s now taxable income to them. That’s the rule.

Hilary Hendershott: Deadlines for W2s and 1099s are January 31 so make sure you’re prepared, meaning you have current, correct information for the people you paid. You need their addresses and tax ID numbers.

Hilary Hendershott: Seriously, if you don’t know the last time those details were updated, make it happen. My bookkeepers do this for me, but I always end up being part of the process, right? Like, because maybe they only respond to my emails, or I just know their address better, right? So it’s an active thing we do over the course of the year.

Hilary Hendershott: Next item. Do you have inventory? How many people listening to this show are product business owners with inventory? If you’re not doing inventory audits regularly, take this opportunity to conduct an inventory audit. It will give you a clear picture of what you have on hand, and it will identify slow moving or obsolete items that you need to liquidate.

Hilary Hendershott: Efficient inventory management directly impacts your cash flow and profitability, and that allows you to free up capital and invest in areas that lead to more profits.

Hilary Hendershott: This is the process of running a business. You really can’t have too much clarity as a business owner. So count your inventory, understand what’s moving and what’s not, and do more of what’s working.

Hilary Hendershott: The end of the year is also a great time to evaluate your business insurance needs. If you have employees do you have workers comp insurance? Do you have adequate E&O or liability insurance?

Hilary Hendershott: Adjust your coverage as your business grows, because if you wait until you need insurance, it’s too late to get it, my friend. You have to protect against unforeseen risks, right?

Hilary Hendershott: You never think you’re going to have an insurance claim, but over the course of your business ownership time period, you probably will. And adequate insurance really should give you peace of mind, because it safeguards your business in the event of an unexpected bad event.

Hilary Hendershott: All right, here’s a fun one: new for 2024, the Corporate Transparency Act, and it applies to you if you run a business.

Hilary Hendershott: This one comes from FinCEN, that’s the Financial Crimes Enforcement Network, in an effort to crack down on illegal activity? You know, I don’t know. It’s an effort to crack down on something that hides behind the guise of small business ownership.

Hilary Hendershott: They want to know who benefits from ownership in your business. What does it mean for you? One more thing to file. And what you’ll need to file is called your Beneficial Ownership Information, which requires you to declare any person who either directly or indirectly exercises quote, unquote, substantial control and/or owns at least 25% ownership interest in your company.

Hilary Hendershott: Sorry, this has been such a process for us this year. Not my company–with clients. It’s just such a thing that they put on people. Each reporting company will have at least one beneficial owner. So there’s no limit to the number a reporting company can have.

Hilary Hendershott: This isn’t something that your financial advisor can file for you, nor can your CPA, but your CPA can absolutely advise you on it. The good news is, once it’s done, it’s done. Hopefully they never do this to us again, but the reporting requirements are stiff and the penalties are stiffer, so get it done by year end and check that one off the list.

Hilary Hendershott: All right, I covered most account deferrals earlier in this episode, but it bears repeating that now is the time to ensure you’ve made all the contributions to retirement accounts you are allowed.

Hilary Hendershott: Most business owners are contributing to one of the types of accounts I’m going to mention now. You have special accounts you can contribute to–those being SEPs. SEP stands for Simplified Employee Pension, or simples, or Solo 401(k)s, which I’ve mentioned.

Hilary Hendershott: SEPs allow you to defer 25% of your business’s net income, up to a max of $69,000 in 2024 and Solo(k)s allow you to defer up to the 401(k) limit, regardless of income, which can be a really handy thing for you.

Hilary Hendershott: If you don’t need to take that income out of your business, you can just defer it for retirement if you have a Solo(k). The best thing to do here is discuss this with your CPA or financial advisor, because the amount you can defer and the type of account you can open and contribute to is totally dependent on your bookkeeping for the year.

Hilary Hendershott: I remember there were three subsequent years I was in business, and I went directly from SEP to Solo(k) to full 401(k) because my business was growing so fast.

Hilary Hendershott: Okay, looking forward, now that 2024 is wrapping up, and you’ve gone through the year end of your checklist, you know your financial position in your business and your personal net worth, that means you can create meaningful and inspiring goals that move you closer to fulfilling your personal financial or lifestyle vision.

Hilary Hendershott: This is where it gets fun. I’m not going to lie, completing the year financially is not super exciting, but I do it every year because it’s necessary and because I feel great when I’m organized. And I’m grateful to my past self as I move forward in my wealth building journey.

Hilary Hendershott: It’s not nearly as fun as the creation part that comes next, but it’s a necessary part of the process.

Hilary Hendershott: Here are some ideas that my team and I put together to jump start your goal setting process as you create your year ahead.

Hilary Hendershott: Start a personal or business charitable gifting program. Like I mentioned, I give money to lots of charities and people all year round, and it’s something that I feel really good about.

Hilary Hendershott: Also make sure to put your 2025 personal time and vacations on the company calendar now. Now, that is just one sentence, and it is a sentence that will change your life. And you can do this whether you are an employee or a business owner. It is such a life changing thing to do.

Hilary Hendershott: Go to 2025, put your vacations on the calendar now. Carve out the space you need before those days fill up.

Hilary Hendershott: I actually have days scheduled just to think deeply about what I want to teach next or what I can create to better serve my clients. Seriously. Schedule think days. You know, Bill Gates did it. It’s really a leverage point.

Hilary Hendershott: If you’re not on the payroll in your business in 2025, put yourself on payroll because you need consistent income in your personal life. You have to have it. Business and the economy might be inconsistent or a little bit variable, but your personal bills are pretty darn consistent, aren’t they?

Hilary Hendershott: And while we’re talking about consistency, have you heard me rave about the power of automating your finances? Because if you haven’t, make sure you listen to episode 259, which is all about creating a financial plan that doesn’t involve budgeting.

Hilary Hendershott: That’s a great goal for 2025 and you can find the link to that episode in the show notes, or head to hendershottwealth.com/259.

Hilary Hendershott: So I’ve said often that I’d love it if everyone listening to this podcast was maximizing contributions to retirement accounts. But that’s not the only way to increase your net worth, and every dollar counts.

Hilary Hendershott: One fun way to do that is open a bank account and call it your profits account. You can do this whether you own a business or not. Set up an auto transfer of 1% of each paycheck to that account.

Hilary Hendershott: Start with 1% and then figure out how to get it to 5%. That’s a really fun way to set your mind to working on how you can live your current lifestyle while spending a little less money. And those numbers add up over time. Use your net worth to create financial freedom.

Hilary Hendershott: All right, thanks for hanging in here with me. That is it. As we close the books on 2024, my team and I will be taking the next three weeks to wrap up the year with our wealth management clients and of course, rest and enjoy our families and the holiday season.

Hilary Hendershott:  The next episode of Love, your Money® will air on January 7, 2025, in the new year. If you do want to love on your money over the break, go back to episode 258 of this show, and the 7 Steps to Wealth will keep you company over the holidays with seven episodes of financial goodness, absolutely no family drama included.

Hilary Hendershott: I really look forward to the opportunities that 2025 holds. As you embark on the next phase of your financial freedom, I want to remind you that your financial journey isn’t just about the numbers. It’s really about fostering a mindset of possibility and empowerment, and that really is what this show is about.

Hilary Hendershott: True financial well being extends beyond your bank account balances. Having sufficient financial resources is key to financial well being, but you can still have fun on the way. So don’t get too serious or significant about your finances. You have many years to live, and you can afford small setbacks.

Hilary Hendershott: Wealth preservation is a skill you can learn, and you’re actively building the wisdom you need to break through to brand new levels of effectiveness and fulfillment.

Hilary Hendershott: If you’re here listening to this podcast and putting the strategies into place, I promise you, you’re exactly where you need to be. You’re learning, and each day brings you one step closer to financial freedom.

Hilary Hendershott: I hope you enjoyed this end of year rundown. If you have additional things you think I should add to the checklist, send them to me at hello@hendershottwealth.com. And thank you for being a loyal listener.

Hilary Hendershott: May your holiday and New Year’s celebration be filled with hope, optimism, fireworks, and may the only pain in your life be champagne. Here’s to a thriving future. Cheers, Money Lover.