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Year-End Tax-Wise Planning Tips

Year-End Tax-Wise Planning Tips

November 30, 2021


Most of us want to save on taxes. If you aren't doing tax planning, you could be missing out. There are a few simple tax-saving strategies that can be implemented before the year ends. 

Tax planning is more than completing and filing your state and federal taxes. Year-end tax planning means going over potential tax deductions that you may have missed during the year. Talk with your tax professional to make sure that you're capturing the strategies that are available to you.  

Defer Income

Rather than taking a bonus at the end of the year, consider pushing it to the beginning of next year. If you are self-employed, you can use a similar tactic by waiting to send year-end invoices until the beginning of the new year.

Tax-Loss Harvesting

Tax-loss harvesting is another strategy that can reduce taxes. Through tax-loss harvesting, the capital gains from one investment balance out the capital losses from another investment. It reduces the taxes you're required to pay on the capital gains you receive from an investment which has increased in value.

Tax-loss harvesting won't eliminate what you owe for this year's taxes, but it can help offset what you owe on your taxable investment accounts. You may also choose to sell mutual funds that are scheduled to pay significant capital gains rather than taking the gains. 

Maximize Retirement Account Contributions

If you have a 401(k) retirement account with your employer - and/or an IRA - and haven't made the maximum contributions for the year, now is a great time to do so.

As contributions to your employer-sponsored retirement account are pre-tax, the more contributions you make, the lower your taxable income will be. If your income level qualifies, you can deduct contributions to your Roth or Traditional IRA as well, thus reducing your taxable income even further.

Because 401(k) contributions come from your paycheck, you'll want to speak with your employer to increase what you're adding to your retirement account. Your HR team should be able to help you find out how much you've already contributed and how much you need to save to hit your annual limit.

Increasing your retirement contributions will decrease your take-home pay, but will help you reduce your taxable income and save more for your retirement. Be sure that you're maximizing any match contributions that your employer offers as well. 

Check On Heath Savings Account Contributions

Like making 401(k) contributions, adding money to your HSA reduces your taxable income for the year, therefore reducing what you owe in taxes. And HSA contributions have a triple tax benefit. They are tax-deductible, grow tax deferred and are tax-free distributions for healthcare expenses. Additionally, many HSAs let you invest in various funds, which have the potential to increase the value of your HSA.

Please note, in order to invest in an HSA, you must have a high deductible health care plan. 

Use Charitable Giving to Reduce Taxable Income

If you have a taxable investment account with significant gains in particular holdings, you may be able to gift those shares to your favorite charitable organization. The same is true if you do not need your Required Minimum Distribution (RMD) that the IRS requires each year. You may be able to gift your RMD to a charity through a Qualified Charitable Distribution. By gifting the funds directly and not taking possession, you may reduce your taxable income. 

Use these tips in your year-end tax planning and make the most of your income. If you have questions about how you can reduce your taxes or need help applying these strategies, contact our office. We partner with tax professionals to make sure that you're capturing all of the tax-wise options available to you. 

This communication is designed to provide accurate and authoritative information on the subjects covered. It is not however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.

Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty.