End-of-year tax planning is essential for optimizing your financial situation and minimizing tax liability. Here are some tax planning strategies to consider as the year-end approaches:
1. Maximize Retirement Contributions: Contribute the maximum allowable amount to your employer-sponsored retirement plan (e.g., 401(k) or 403(b). Contribute to your individual retirement accounts (IRAs) and consider making catch-up contributions if you’re 50 or older.
2. Tax-Loss Harvesting: Review your investment portfolio and consider selling assets with losses to reduce your taxes. Maintain your asset allocation and be aware of wash-sale rules, which restrict repurchasing the same or substantially identical securities within 30 days.
3. Itemize Deductions: If your itemized deductions are close to exceeding the standard deduction, consider making future charitable contributions now.
4. Charitable Contributions: Make charitable donations to qualified organizations. Keep records of these donations, including receipts, for tax purposes. Consider donating appreciated securities to avoid capital gains tax.
5. Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs): Contribute the maximum allowable amount to your HSA if you have a high-deductible health plan. Use any remaining funds in your FSA for eligible medical expenses before they expire at the end of the year.
6. Qualified Business Income (QBI) Deduction: If you have a small business, consult a tax professional to ensure you maximize the QBI deduction. Consider strategies to increase your QBI deduction, such as salary adjustments and capital investments.
7. Review Investment Accounts: Rebalance your investment portfolio to re-align your portfolio with your long-term financial goals and risk tolerance. Consider tax-efficient investments and asset placement to minimize taxes on investment gains.
8. Roth Conversions: Evaluate whether converting some or all of your traditional IRA to a Roth IRA makes sense based on your current and expected future tax rates.
9. Required Minimum Distributions (RMDs): If you’re 72 or older, ensure you take your RMD from retirement accounts since failing to do so can result in penalties.
10. Estate Planning: Review and update your estate plan to minimize estate taxes, ensure proper asset distribution, and consider gifting strategies.
11. Educational Savings Accounts: Contribute to 529 plans for education expenses, as some states offer tax deductions or credits for contributions.
12. Tax Credits: Ensure you take advantage of available tax credits, such as the Child Tax Credit, Earned Income Tax Credit, and education-related credits.
13. Gifting: Take advantage of the annual gift tax exclusion by making tax-free gifts to family members or loved ones.
14. Review Your Tax Withholding: Check your tax withholding to ensure it aligns with your expected tax liability. Adjust withholding if necessary to avoid underpayment penalties as well as excess withholding.
15. Research & Development Tax Credit: If your business makes technological improvements to new or existing products, consider pursuing the R&D tax credit.