Let Me Clarify

I don’t know about you, but it feels like this year has flown by. It seems like we just celebrated New Year’s, watched the Super Bowl and were enjoying the warmer weather, yet here we are on the doorstep of the holiday season.

As the year draws to a close, it is the perfect time to start thinking about year-end tax planning. Taking proactive steps now can not only help minimize your tax liability but can result in compounding benefits throughout your long-term financial plan.

Let’s explore some common year-end items.

Review Your Income and Expenses:

Start by evaluating your current financial situation. Review your year-to-date income, expenses, and savings. This will help you identify areas where you can optimize your tax strategy.

Contribute to Retirement Accounts:

Maximize contributions to your retirement accounts, such as a 401(k) or an IRA. These contributions can reduce your taxable income for the year while providing additional savings toward your future goals.

Roth Conversions:

Depending on tax rates sunsetting in the next few years, your current vs. projected future income, and a variety of other factors, you may want to consider accelerating taxes through Roth conversions. This won’t help you reduce your taxes in the current year but could help lower the amount of taxes that you’ll pay throughout your lifetime.

Charitable Contributions:

If you plan to make charitable donations, do so before the year-end. Not only will you be contributing to a worthy cause, but you may also be eligible for a tax deduction, assuming you itemize your deductions.

Required Minimum Distributions (RMDs):

If you're of retirement age and have a traditional IRA or 401(k), be aware of your RMD requirements. Failing to take your RMD can result in substantial penalties, so plan accordingly.

Harvest Investment Losses:

If you have investments that have experienced losses, it may make sense to consider selling them to offset capital gains and reduce your overall tax liability. This strategy is known as tax-loss harvesting.

Health Savings Account (HSA) Contributions:

If you have a high-deductible health insurance plan, consider contributing to an HSA. These contributions are tax-deductible, and the funds can be used tax-free for qualified medical expenses.

Review Withholding/Estimated Payments:

Although a bit late in the year, it’s a good idea to make sure you are on track to withhold enough to avoid unnecessary underpayment penalties. This may require increasing withholding from your remaining paychecks or making an estimated tax payment.

As a friendly reminder, everyone’s situation is a bit different than the rest, so you should consult with your advisor and/or tax professional to determine what’s best for you. Doing so could help identify areas to help minimize your tax liability, bring efficiency to your overall financial plan, and could help you start the new year on solid financial footing.