Year-end Tax Planning Ideas

By DeBlanc + Murphy
December 5, 2023

April may be a ways off, but the end of the year is the perfect time to review your financial situation, implement strategies to reduce your tax liability, and set yourself up for a prosperous New Year.

Here are a few year-end tax planning ideas you can tackle before December 31.

Take Required Minimum Distributions (RMD)

Taking Required Minimum Distributions (RMDs) from your retirement accounts, like a traditional IRA, 401(k), or other tax-deferred retirement plans, is not just a good strategy—it's a legal requirement once you reach 72. Avoid missing the deadline and paying a 25% penalty on the RMD you failed to withdraw.

Maximize Your 401(k)

You reduce your current taxable income by contributing to your 401(k). How? These contributions are made with pre-tax dollars. This lowers your tax bill and allows your investments to grow—tax-deferred. And the more you contribute, the more potential for growth, all while saving on taxes now.

Consider a Roth Conversion

A Roth conversion involves transferring money from a traditional IRA or 401(k) into a Roth IRA. Doing this requires you to pay taxes on the converted amount in the year of the conversion. However, you benefit from doing this because future withdrawals from the Roth IRA—including earnings—are tax-free as long as they meet certain conditions.

Give a Little

Making charitable donations is another wise move for year-end tax planning. If you itemize deductions on your tax return, these donations can reduce your taxable income. It's important to note that the deduction amount you can claim often varies based on the nature of the charity and the form of your donation—whether it's in cash, stocks, or goods.

Don’t Forget Nonqualified Stock Options (NQSOs)

Exercising NQSOs involves buying company stock at a price given to you by your employer. When you do this, you must pay tax on the profit you make from this special price. This profit is the difference between what the stock is worth on the market and the lower price you pay.

In simple terms, if you wait until the end of the year to exercise these options, you may wish to exercise just enough options to make sure the extra income doesn’t push you into a higher tax bracket.

Maximize Other Tax-Deferred Savings Accounts

Another effective year-end tax planning strategy is maximizing contributions to other tax-deferred savings accounts like Health Savings Accounts (HSAs) and Traditional IRAs. Here's how it works:

Health Savings Accounts (HSAs): If you have a high-deductible health plan, contributing to an HSA is smart. Contributions are made with pre-tax dollars, lowering your taxable income. The funds can be used tax-free for qualified medical expenses, and any unused balance rolls over from year to year. For 2023, the contribution limits are $3,850 for individuals and $7,750 for families.

Traditional IRAs: Contributions to a Traditional IRA can also reduce your taxable income, as they are often tax-deductible (depending on your income and retirement plan). The money grows tax-deferred, and you only pay taxes when you withdraw funds in retirement. For 2023, the contribution limit is $6,500, or $7,500 if you're 50 or older.

Jump-Start Your Year-End Tax Strategy Today!

Ready to jump-start the next year and make the most of your financial opportunities? Our team is prepared to help you navigate your year-end tax planning, offering you peace of mind and the potential for significant tax benefits for you and your family. Contact us now to get started!

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