Year-End Tax Planning: 5 Smart Strategies to Maximize Your Savings
Welcome to this edition of Money Matters with FSA, where we tackle key financial planning tips to help you stay ahead. I’m Mike Zarelli, a Certified Financial Planner, and today I’ll share five essential tax strategies to consider before the year ends. Let’s dive right in!
1. Know Your Contribution Deadlines
Not all retirement accounts share the same deadlines, so it’s important to know which ones apply to you.
• Employer Retirement Plans: For accounts like 401(k)s or 403(b)s, the contribution deadline is December 31st.
• Individual Accounts: For IRAs, Roth IRAs, and HSAs, you have until April 15th of the following year to contribute.
• Business Owners: If you have a solo 401(k), you may have until your business tax filing deadline to contribute.
Knowing your deadlines ensures you maximize contributions, lower your tax burden, and stay on track with your long-term goals.
2. Roth Conversions
Roth conversions are a hot topic and can help reduce your lifetime tax bill. By converting funds from a traditional IRA to a Roth IRA, you pay taxes now at potentially lower rates to avoid higher taxes in the future.
• Progressive Tax System: Our tax brackets work like stair steps, so only income above a certain threshold gets taxed at higher rates.
• When to Consider: If you’re in a lower tax bracket now and expect higher rates in retirement, a Roth conversion can make sense.
• Professional Advice: Work with a tax preparer or financial advisor to run the numbers and optimize your strategy.
3. Tax Loss Harvesting
If some investments underperformed this year, you can use tax loss harvesting to offset gains and reduce your tax liability.
• How It Works: Sell losing investments in taxable accounts to offset capital gains. If losses exceed gains, you can deduct up to $3,000 from your income.
• Carry Forward: Any unused losses can be applied in future years.
• Taxable Accounts Only: This strategy applies to non-retirement accounts.
While this year’s strong market might limit opportunities, it’s worth reviewing your portfolio for potential tax-saving moves.
4. Charitable Giving Strategies
The standard deduction for married filing jointly is $29,200, making it harder to itemize deductions. However, strategic charitable giving can help.
• Bunching Contributions: Skip a year of charitable contributions and double up the next year. For example, contribute $10,000 in one year instead of $5,000 annually to exceed the standard deduction.
• Maximize Deductions: Use this strategy to make your generosity count more for tax purposes.
5. Inherited IRA Rules
The rules for inherited IRAs have changed. Instead of spreading distributions over your lifetime, you must now withdraw all funds within 10 years of inheriting the account.
• Plan Around Income: Withdraw funds during lower-income years, such as when switching jobs or retiring, to minimize tax impact.
• Required Minimum Distributions: Starting in 2025, some distributions may be required annually.
Consult a financial advisor or tax preparer to plan your withdrawals strategically.
Bonus Tip: Tax Withholding Check
Avoid penalties by ensuring you’ve withheld enough taxes from your income.
• What to Pay: At least 90% of your current year’s taxes or 100% of last year’s taxes (110% if you earn over $150,000).
• Avoid Interest and Penalties: Adjust withholding from paychecks, pensions, or IRA distributions to stay compliant.
As we say, “Tip your servers, not the IRS!”
Final Thoughts
Year-end tax planning can save you money and set you up for financial success. If you need help, don’t hesitate to consult a professional.
For questions or personalized advice, reach out to us at [email protected] or call (301) 949-7300.
Here’s to a smart and prosperous year ahead! See you in the next edition of Money Matters with FSA.
FSA’s current written Disclosure Brochure and Privacy Notice discussing our current advisory services and fees is available at www.fsawealthpartners.com/disclosures or by calling 301-949-7300.
