As we approach the end of the year, tax season is quickly coming into focus. While our blog posts generally focus on market trends and investment strategies, we’re shifting gears to share actionable year-end tax planning insights to help you optimize your financial position.
These tips are designed to help you align your tax strategy with your broader financial plan, ensuring all aspects of your financial strategy work together. As always, we’re here to provide support and guidance to help you achieve your long-term goals.
- Check Your Tax Withholding
Ensure a smoother tax season by confirming that your tax withholding is on target. Falling short of withholding requirements can lead to unexpected penalties—currently 8% for all four quarters this year. The IRS withholding calculator (click here) is a helpful tool to check if you’re on track and make any necessary adjustments.
If adjustments are needed, you can increase paycheck withholding or, if you’re over 59½, use retirement account withdrawals. Withholding from a retirement account can be advantageous as the IRS treats it as evenly spread throughout the year, potentially reducing penalties.
Staying proactive now can help you avoid unnecessary penalties later.
- Tax-Loss Harvesting
Tax-loss harvesting can be an effective way to manage your tax liability, especially if you have investment gains. By selling underperforming investments, you can offset capital gains, potentially reducing your taxable income. If your losses exceed your gains, you can use up to $3,000 of the excess losses to lower your taxable income for the year. Any remaining unused losses can be carried forward to offset future capital gains, providing valuable tax relief for years to come. Tax-loss harvesting is best utilized as part of a long-term investment strategy.
- Required Minimum Distributions (RMDs) and Charitable Giving
If you don’t need the income from your RMDs, consider a Qualified Charitable Distribution (QCD). A QCD allows you to donate directly from your IRA to a qualified charity, satisfying your RMD while excluding the amount from taxable income. Individuals aged 70½ or older can make QCDs of up to $100,000 per year per person, offering a tax-efficient way to support charitable causes.
- Consider Roth Conversions
Year-end is a great time to evaluate Roth conversions. Roth IRAs grow tax-free, are not subject to RMDs, and can be inherited tax-free by your heirs. Converting before year-end can help you take advantage of current tax rates and position your portfolio for long-term tax efficiency.
- Maximize 529 College Savings Plan Contributions
To maximize the benefits of your 529 Plan contributions for the 2024 tax year, ensure your contributions are made by December 31. These plans offer state tax benefits in many areas, so timely deposits can mean more savings for education.
- Standard or Itemized Deduction?
It’s important to assess whether taking the standard deduction or itemizing will benefit you more this year. Those with substantial deductible expenses (like mortgage interest, medical expenses, or charitable donations) may find itemizing yields a larger tax break.
- Inherited IRA Changes
For those with beneficiary IRAs, recent rule changes may affect your Required Minimum Distributions (RMDs). Beginning in 2025, RMDs will be required for inherited IRAs where the original owner had already begun taking RMDs. Proactive planning and thoughtful discussions can help adapt to these changes and minimize potential tax burdens.
- Home Energy Credits
If you’ve made energy-efficient improvements to your home, such as installing solar panels, mechanical systems or upgrading insulation, you may be eligible for home energy credits. These credits not only encourage eco-friendly home upgrades but also provide a tax benefit that could lower your taxable income.
Aligning your Tax Strategy with Your Financial Goals
These year-end tax planning tips are designed to help you better align your tax strategy with your overall financial plan, ensuring both work together to support your long-term goals.
We’re here to help—whether it’s modeling different scenarios, clarifying strategies, or collaborating with your tax professional. If you’d like to discuss how these tips fit into your financial plan, please don’t hesitate to reach out.
Disclosure: This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.