Tax season might seem far away at times, but your actions now can make a big difference when filing your taxes. Year-end tax planning is essential for ensuring you’re taking advantage of every opportunity to lower your tax bill or optimize your financial strategy. To help you navigate this, let’s explore the 5 tax to-dos before the end of the year that could save you significant money. The clock is ticking—make the right moves now.
Understanding Year-End Tax Planning
Before jumping into the specific tasks, it’s helpful to consider why year-end tax planning matters. Your financial decisions now affect how much tax you pay come April—and even beyond. Depending on whether you expect a higher or lower income this year compared to other years, you can take targeted steps to either reduce your taxable income or maximize your benefits.
The strategies below are designed to help you stay ahead of the game.
1. Max Out Contributions to Pre-Tax Accounts
One of the simplest and most effective ways to reduce your taxable income is to contribute to pre-tax accounts such as 401(k)s, 403(b)s, IRAs, and Health Savings Accounts (HSAs). Contributions to these accounts lower your taxable income, which is especially valuable if you’re in a high tax bracket.
Contributions to pre-tax accounts not only save you money now but also allow for tax-deferred growth, meaning your money compounds faster over time. For employer-sponsored plans like 401(k)s, make sure contributions are made by December 31. For IRAs and HSAs, you often have until the tax filing deadline in April, but acting sooner helps you avoid last-minute stress.
2. Use Itemized Deduction Strategies
If your itemized deductions are usually close to the standard deduction amount, consider “lumping” your deductions. This strategy involves timing certain expenses so they fall within the same year, helping you surpass the standard deduction threshold.
For instance, you might donate $10,000 to charity every other year instead of $5,000 annually. Another option is to pay medical expenses or property taxes early if possible. If charitable giving is part of your strategy, a Donor-Advised Fund (DAF) allows you to make a large, tax-deductible donation upfront while spreading out the payments to charities over time.
3. Harvest Tax Losses—and Gains
Tax loss harvesting involves selling investments that have lost value to offset gains elsewhere in your portfolio. By reducing your taxable income, this strategy minimizes the immediate tax impact without significantly altering your overall investment position.
On the flip side, if you’re in the 0% long-term capital gains tax bracket, consider selling appreciated assets to realize gains tax-free. In 2024, married couples filing jointly can have taxable income up to $94,250 and still qualify for the 0% rate.
These techniques can help reduce this year’s tax burden while positioning your portfolio for long-term tax efficiency.
4. Consider a Roth Conversion
If you anticipate being in a higher tax bracket during retirement, a Roth conversion might be a smart move. A Roth conversion involves transferring funds from a traditional IRA to a Roth IRA and paying taxes on the amount converted at your current rate. Once in a Roth IRA, the funds grow tax-free, providing a significant benefit in retirement.
Calculate an optimal conversion amount with the help of a tax advisor to avoid entering a higher tax bracket.
5. Project and Plan for Future Taxes
The most effective tax planning starts with a clear understanding of your current financial situation and future expectations. A year-end tax projection can help you pinpoint opportunities to lower your lifetime tax bill. This is especially helpful if you’re juggling multiple income streams, like employment income, investments, or side gigs.
Work with a professional to estimate your taxable income, identify areas where you can reduce it, and ensure you’re not paying more than legally required.
The Time to Act Is Now
Year-end tax planning isn’t just about reducing this year’s taxes—it’s about building a brighter financial future. Whether you’re contributing to pre-tax accounts, lumping deductions, harvesting tax losses, or considering a Roth conversion, these five tax to-dos before the end of the year can have a lasting impact. Don’t wait until it’s too late to take advantage of these opportunities. Start today, and make sure your finances are working as hard as you do. Contact Berger Financial Group today to get started.
