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Year-End Tax Planning

Year-end tax planning is an essential part of managing your finances and minimizing your tax liability. This is a time to review your financial situation and take steps to reduce your tax burden for the current tax year. Here are some key considerations you should make for your year-end tax planning as part of your financial planning and wealth management strategy.

Review Your Income and Deductions

The first step to sound financial planning is estimating your total income for the year. These include wages, self-employment income, investment income, and any other sources. Similarly, review your deductions, like mortgage interest, state and local taxes, and charitable contributions. Consider accelerating or delaying your income whenever possible to help control your tax bracket.

Maximize Retirement Contributions

As part of your wealth management strategy, you can secure your future while reducing your taxable income by contributing to retirement accounts like 401(k) s and IRAs. Depending on your eligibility, you can also make catch-up contributions to your retirement accounts. Be sure to make the maximum allowable contributions to your employer-sponsored retirement plan, like 401(k) and 403(b).

Review Capital Gains and Losses

As you embark on year-end tax planning and wealth management, familiarize yourself with the different tax rates for short-term and long-term capital gains. If you have investment losses, sell the investments and offset them against the year’s capital gains.

If your losses exceed your gains, you can deduct up to $3,000 of the losses from your ordinary income. The remaining losses can be carried over to future years. However, remember the wash-sale rule, which hinders you from deducting a loss when you buy a similar or substantially identical security 30 days prior to, or following, the sale.

Prepay Deductible Expenses

If you have deductible expenses like property taxes and you expect to itemize your deductions, prepay them before the year ends. Doing so allows you to claim the deduction in the current year, which in turn lowers your taxable income.

Another way to reduce your tax liability as part of your financial planning strategy is by bunching specific deductions in one year. For 2023, the IRS allows taxpayers to deduct their total qualified unreimbursed medical expenses that exceed 7.5% of their adjusted gross income if they itemize their deductions.

To potentially be able to deduct more health care costs, consider “bunching” nonurgent medical procedures and other controllable expenses. For example, if your year-to-date medical expenses already exceed 7.5% of your projected 2023 adjusted gross income, and you’re anticipating elective surgery or major dental work in early 2024, you could instead schedule it before year-end.

Use Flexible Spending Accounts (FSAs)

Spend any remaining funds in your FSA on eligible medical expenses before the year ends. You can schedule last-minute check-ups, stock FSA-approved items like contact lenses and bandages, and fill your family’s subscriptions.

Also, consider contributing to a Health Savings Account (HSA) if you’re eligible. Aim for the maximum contribution limit to your HSA, as they are tax-deductible and can be used for qualified medical expenses.

Make Charitable Contributions

If you plan to itemize deductions, consider making charitable contributions before year-end to increase your deductions. You can do this by gifting appreciated assets like stocks or real estate to charitable organizations to avoid taxation on capital gains.

Take Your Required Minimum Distribution (RMD)

IRA owners who turn age 73 or older in 2023 must take a 2023 RMD by December 31st. Participants in employer plans in the same age bracket are also subject to RMDs, assuming they do not qualify for the “still-working exception.” Failure to take the RMD means you’ll have to pay a 25% excise tax on the amount you should have withdrawn.

Do a Qualified Charitable Distribution (QCD)

IRA owners and beneficiaries who are at least 70 ½ can transfer up to $100,000 tax-free to charities directly from their IRA in 2023. The QCD can satisfy the IRA owner’s RMD (as long as the RMD has not already been withdrawn).

Consider Roth Conversions

You do not incur an income tax on Roth IRAS when you withdraw them in retirement. Evaluate whether converting some or all of your Traditional IRA funds to a Roth IRA makes sense based on your tax situation and long-term financial goals.

While a Roth IRA gives you an immediate tax liability, you get tax-free income upon retirement, which gives you the flexibility for better cash flow management. To qualify as a 2023 Roth Conversion, the funds must leave the IRA by December 31st.

Consult a Tax Professional

Year-end tax planning is a complex process that may involve tax policy changes you may not be aware of. As part of your financial planning, consider seeking advice from a tax professional or financial advisor who can provide personalized guidance based on your unique circumstances.

Plan for Next Year

It’s never too early to plan for next year. Think of ways to improve your tax situation in the coming year, such as adjusting your withholding or adjusting your financial plan.

Remember that tax planning should be part of your overall financial strategy. It's important to start early and consult with professionals if you have complex financial situations. Tax laws can change, so staying informed and proactive is key to effective year-end tax planning and better wealth management.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

Talk with an advisor.

Engage with a qualified partner for financial guidance built on loyalty, empathy, and integrity.

Talk with an advisor.

Engage with a qualified partner for financial guidance built on loyalty, empathy, and integrity.