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Year-End Tax Planning Tips

Updated: Apr 1

End-of-Year Tax Tips to Save Money and Make Filing Your Taxes a Breeze

January calendar, lock and "tax key"

Disclaimer: The information provided is not intended as tax or legal advice and may not be relied on for purposes of avoiding any federal tax penalties. Individuals are encouraged to seek specific advice from their personal tax or legal counsel.

Taxes?! We have until April to think about taxes, right? Well, not really. That is, if you want to save money and make your April tax planning that much easier! Follow these easy tips to learn how to save money in taxes, while still fulfilling your tax requirements.

It's nearing the end of the year and, in addition to planning your New Year's Eve festivities, it's time to consider your income tax situation. Before you get bummed out about having to deal with taxes many months before you thought you had to do so, know that there is a silver lining. That's right! Did you know you can benefit from some serious tax savings by doing this year-end tax planning exercise?! Call it an early holiday gift!

Shift Income and Deductions

First thing's first! It depends on your personal tax situation, but shifting income or deductions between this year and next may decrease the total amount of money you owe in taxes. 

Take a moment to consider if your income will change from one year to the next. If you're like many Americans, your income may have shifted one year due to a payout, a loss of a job, or any other reason for substantially higher or lower income. Perhaps next year has a brighter outlook? Or, perhaps you're planning for yet another shift in income next year. If that's the case, and you're income will change next year, you may benefit from the following options:

Increase or Delay Deductions

This tactic of increasing or delaying your deductions for this year or next can help you to better manage your cash flow. To do this, you can make additional property tax payments or state income tax payments now, before the end of the year, which may result in lower taxes next year.

Push Income to Next Year

Now, we recognize that scheduling your own income is a privilege that not many people have. But, if you are able to change the date of your income and payments, or perhaps scheduled work to accrue said income, that could help reduce the amount you owe in taxes come April.

Plan Charitable Contributions

Do you regularly support charities? Is there a particular time of year you tend to make these charitable contributions? Did you know when you donate money can affect your taxes?

Contribute by Year-End

Depending on your cash flow situation, you can determine when to make this contributions to plan your tax deduction. If you often make charitable contributions to organizations, making these donations by year-end may allow you a tax deduction this year instead of next. 

Give the Gift of Stocks

While you can always contribute cold cash, you can also contribute financially to you favorite charitable organization(s) with stocks—while also saving on your taxes in the meantime. If you have a stock that is faring particularly well, you can consider donating some of these highly appreciated stocks as charitable donations to your organization of choice. In doing so, you may avoid the taxable gain you'd have to pay in your taxes. Win-win! Contact your tax professional on this topic to learn more.

Annual Gifting

The annual gift exclusion means that, if someone gifts you more than a certain amount, or if you give someone else more than that certain amount, you need to report that gift to the IRS. Check the IRS for the current, up-to-date figures.

What's a Gift?

Keep in mind that payments for educational expenses (e.g., college tuition, books) or medical expenses (e.g., gifting a family member IVF costs) are not considered gifts if they are paid directly to the institution. Because these types of expenses are not considered gifts, they do not require any annual limitations. But, that means that the check your parents gave you and made out to you, to cover the cost of your child's private school is a gift. (Ask them to instead write the check to the institution.)

Payments to college savings 529 accounts are considered gifts, but can be "front loaded" for five years. Connect with your financial professional to discuss this strategy.

Tax-Loss Harvesting

Part of the pain of playing in the stock market is seeing your stocks lose value. It's all a part of the game, unfortunately. But, you can harvest your losses! At the end of the year, you can sell down stock positions that have significant losses. In doing so, you can book tax loss, which can offset some taxable income or future gains.

Alternative Minimum Tax (AMT)

Are you in AMT? Your tax liability is actually calculated two ways: the standard tax system and the alternative minimum tax. You owe whichever is larger. AMT eliminates many deductions, credits and preferential tax treatment of some income. If you are in AMT, contact your financial professional about other planning items to consider.

Individual Retirement Accounts (IRAs)

Traditional IRAs

Traditional IRAs must be established, and contributions must be made by the tax-filing deadline. You have until April (without extensions) to contribute to your IRA for the tax year in which your qualifying contribution will apply.

An Inherited IRA

Did you inherit an IRA? If so, there are distribution requirements for these funds, since tax has not been paid on them yet.  If you inherited this IRA recently, note that you must begin to take distributions by December 31 of the year after the year of the original owner’s death. Distribution rules for IRAs can be complex, so we highly recommend you seek proper tax advice.

There you have it! With completing these tasks now, ahead of the new year, you can enjoy yourself now and all throughout the tax season. It's the end of the year after all, so grab that champagne and toast to a new year and easier tax planning!

It is important to understand that nothing in this content should be considered personalized investment, financial, tax or legal advice.

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