End of Year Strategies: What Tripped You Up in 2016?

In recent columns, we’ve discussed the importance of looking back to look ahead, both in terms of budgeting for 2017 and in terms of identifying any performance, investment, or rebalancing issues you need to address. But what if you know for sure that you made an investing mistake in 2016? How can you make sure it doesn’t happen again? Let’s take a look at a few categories of mistakes and possible remedies, over two parts.

Related: End of Year Strategies: Fresh Start for 2017

2016 investing ill: Miscellaneous expenses were your undoing.

2017 remedy: Establish a contingency fund.

Every portfolio also needs it share of liquidity. For dentists running their own practice or sharing one with partners, there is always the temptation to skip a contingency fund in favor of expanding your practice, buying new equipment, or hiring additional staff. While those are all legitimate uses of “extra” money, there is sound financial reasoning for establishing and maintaining an emergency fund. There are any number of circumstances for which you may need quick cash, including an unexpected home repair, the sudden illness of a family member, an unexpected interruption in your practice, or any number of life’s little curveballs.

Your contingency fund can take the form of a savings account, a money market account, or even relatively liquid investments such as certificates of deposit. No matter what form it takes, having one in place will keep this pothole filled.

2016 investing ill: An audit from the Internal Revenue Service (IRS).

2017 remedy: Watch for these red flags.

Any taxpayer can be subject to an audit. Just because you were selected for one doesn’t mean you committed any malfeasance or broke the law. But there are some key red flags the IRS looks for. Chief among them are:

· Big swings in income year over year, positive or negative. Many dentists can’t help such swings, but the key is to accurately report income every single year.

· Being self-employed (as many dentists are). This is especially a factor if you claim home- or office-related costs as expenses.

· Inflating charitable deductions. This isn’t as common as many people think, nor is it high on the IRS’ list. But if something seems way out of norm, they’ll take a look.

· Not reporting all of your income. This typically happens as a result of a mistake, but take care to report everything you earn, especially if you have significant side income.

In part 2, we’ll look at a remedy for slow-starters, and one for the set-it-and-forget-it crowd.