Year-End Tax Planning: Smart Moves Before the New Year

A few strategic moves before December 31 can lower your taxable income, reduce your tax bill, and set you up for a stronger financial future.

Maximize Retirement Contributions

• 401(k)s and 403(b)s: If you haven’t reached the annual contribution limit, increase your contributions from your final paychecks. Every dollar to a traditional 401(k) reduces your taxable income.
• Traditional IRAs: You have until the tax-filing deadline (typically April 15) to contribute to a traditional IRA for the current tax year. Contributions may be tax-deductible depending on your income.
• HSAs: If enrolled in a high-deductible health plan, an HSA offers a triple-tax advantage — contributions are tax-deductible, growth is tax-free, and qualified withdrawals are tax-free.

Review Your Roth IRA Contributions

The IRS sets specific MAGI limits for Roth IRA contributions. If your income exceeds these limits, your contribution may be considered an “excess contribution” subject to penalties. If you discover your income is too high, you can “recharacterize” your contribution by moving it to a traditional IRA before the tax filing deadline.

Harvest Investment Losses

Tax-loss harvesting involves selling investments that have lost value to offset capital gains realized during the year. If your losses exceed your gains, you can use up to $3,000 of those losses to reduce ordinary income. Be aware of the IRS wash-sale rule, which prevents claiming a loss if you buy a substantially identical security within 30 days before or after the sale.

Consider Charitable Giving

• Cash donations to qualified charities are straightforward deductions if you itemize.
• Donating appreciated stock held for more than a year lets you deduct the full fair market value while avoiding capital gains tax on the appreciation.
• A Qualified Charitable Distribution (QCD) from an IRA — if you are 70½ or older — is excluded from your AGI entirely.