As the year-end approaches, it’s essential to proactively optimize tax strategies. Use this comprehensive checklist to ensure you are well-positioned to maximize tax savings and improve your financial health as this year comes to a close.

Your Year-End Tax Planning Checklist:

1. Required Minimum Distributions (RMDs)

• Review RMDs: Ensure that if you are aged 73+ you meet the December 31 deadline.
• Qualified Charitable Distributions (QCDs): For clients 70 1/2 or older you may donate up to $105,000 to qualified charities, satisfying RMD requirements (excluding donor-advised funds).
• Inherited Accounts: Verify RMDs for any inherited accounts.
• Upcoming RMD Changes: Review 2025 RMD requirements for accounts inherited after 2020.

2. Retirement Planning

• Maximize Contributions: Confirm contributions to 401(k)s or IRAs; employee plans typically close December 31. The deadline for making contributions to a SEP IRA is the tax filing deadline, including extensions, while contributions to a 401(k) and profit-sharing plans must typically be made by December 31 of the tax year, for example.
• IRA + Roth IRA Deadlines: Reminder of the April 15 deadline for Traditional and Roth IRA contributions, with income limits possibly affecting deductible amounts. Deadline for Roth conversions (not to be confused with Roth contributions) is Dec 31. 
• Catch-Up Contributions: Review options for catch up contributions if you are 50 or older.
• Retirement Spending Strategy: Review withdrawal strategies and spending plans if you are nearing or in retirement.

3. Health Savings Account (HSA) Optimization

• Maximize Contributions: If eligible, you have until April 15 to make contributions, with an additional $1,000 catch-up available for those over 55.
• Review HSA Benefits: A Health Savings Account (HSA) offers triple tax benefits. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free.

4. Education Savings

• 529 and ESA Contributions: December 31 state deadlines are approaching (April 15 in six states to secure state tax benefits for 2024).  The six states that allow contributions to 529 plans until April 15 of the following year to secure state tax benefits are: Georgia, Iowa, Mississippi, Oklahoma, South Carolina, Wisconsin. For other states, the deadline is December 31 to qualify for state tax benefits on 529 contributions.
• Review Tax Benefits: 529 plans offer state-specific tax advantages and allow for tax-free growth on funds used for qualified education expenses.

5. Investment Portfolio Management

• Tax-Loss Harvesting: Consider offset of gains by selling losing positions you'd like to offload, up to $3,000 against ordinary income, while observing wash-sale rules.
• Portfolio Rebalancing: Review risk tolerance, asset allocation, and tax implications.
• Liquidity and Cash Flow: Consider using rebalancing proceeds or distributions to meet cash flow needs efficiently, as needed, especially if retired, when planning for 2025 cash needs.
• Tax Efficiency: Explore and evaluate tax-efficiency of holdings for potential tax savings within brokerage accounts.

6. Roth Conversion & Backdoor Roth Considerations

• Lock in Current Tax Rates: For those concerned about rising federal taxes, Roth conversions can lock in today’s rates and allow for tax-free growth and tax-free income in retirement. Be aware of any immediate tax implications of completing a conversion prior to doing so.
• Future RMD Impact: Compare future RMDs from tax-deferred accounts with Roth accounts for potentially better after-tax outcomes for heirs.
• Payment Strategy: Balance conversion taxes with other deductions, especially from taxable portfolios.

7. Income and Threshold Planning  

• Targeted Tax Bracket Management: Consider accelerating or deferring income to remain in your desired tax bracket.
• Medicare IRMAA Notices: Plan for future adjustments based on income projections. Medicare IRMAA (Income-Related Monthly Adjustment Amount) notices inform beneficiaries about increased premiums based on your income level, which could result in adjustments to your monthly Medicare costs.
• Stock Option Exercises: Nonqualified Stock Options (NQSOs) are a type of employee stock option that do not meet IRS requirements for favorable tax treatment, allowing employees to purchase company stock at a predetermined price but subjecting them to regular income tax upon exercise. Consider staggered exercise of NQSOs to optimize tax outcomes. 
• Affordable Care Act (ACA) Subsidies: Affordable Care Act (ACA) subsidies are financial assistance programs that reduce the cost of health insurance premiums for eligible individuals and families based on income and household size, making healthcare more affordable through the Health Insurance Marketplace. Project your income for potential ACA subsidies (enrollment: November 1–December 15).

8. Charitable Giving Strategies

• Charitable Contributions: For itemizers, cash donations can be deducted up to 60% of AGI.
• Appreciated Assets: You can donate appreciated assets at fair market value without incurring capital gains (deductible up to 30% of AGI).
• Donor-Advised Funds and Bunching: A donor-advised fund is a charitable giving account that allows individuals to make a tax-deductible contribution, receive an immediate tax benefit, and then recommend grants to your chosen charities over time, providing flexibility in philanthropy. Consider DAFs for flexibility, and discuss bunching donations to exceed the standard deduction. Learn more about how to get started.

9. Annual Gifting and Estate Planning 

• Annual Gifts: Consider annual gifting and if it is appropriate in your situation. $18,000 annual gifts per recipient to reduce estate tax exposure. Someone might use annual gifts out of an estate to reduce the overall size of an estate, potentially lowering future estate tax liabilities.
• Lifetime Exemption: Review usage of the lifetime estate and gift tax exemption ($13.61 million in 2024), adjusting for inflation.

Tax planning strategies specifically for business owners to consider before year-end:

1. Review Financial Statements: Assess profit and loss statements, cash flow, and balance sheets to understand your business’s financial position.
2. Maximize Deductions: Identify and document all eligible business expenses (supplies, utilities, travel, etc.) to maximize deductions. Consider purchasing necessary equipment or inventory before year-end to take advantage of deductions.
3. Evaluate Depreciation: Review assets eligible for depreciation and consider using Section 179 or bonus depreciation to accelerate deductions.
4. Review Your Business Retirement Contributions: Maximize contributions to retirement plans (401(k), SEP IRA, Profit Sharing, etc.) to potentially lower taxable income and diversify funds that will be available to you in retirement. Now is a great time to review the type of retirement plan you offer through your business to ensure it still meets your needs. You may consider thinking creatively about elevating your benefits offerings to retain and recruit new talent. Now is the perfect time to reassess business benefit options to ensure they align with your business goals. Ready to explore how we can help? Reach out today.
5. Plan for Qualified Business Income Deduction: Determine eligibility for the Qualified Business Income (QBI) deduction and assess income levels to maximize benefits.
6. Review Employee Compensation: Consider year-end bonuses or additional contributions to employee retirement plans to enhance employee satisfaction and claim deductions.
7. Assess Inventory Levels: Evaluate inventory levels to make adjustments for tax purposes and manage cash flow.
8.  Review your vendors and service providers: Ensuring that all vendor payments are accurately recorded can help maximize deductible business expenses. Some vendors may offer tax credits or incentives for early payments or annual vs monthly contracts, allowing businesses to take advantage of additional tax benefits for renewals before year-end. Reviewing the different vendors you work with helps when budgeting for next year, which can lead to better cash flow management and potential savings that can be reinvested in the organization.
9. Plan for Estimated Taxes: Review your estimated tax payments to ensure you are on track and avoid underpayment penalties.
10. Consult a Tax Professional & Certified Financial Planner: Schedule a meeting with your advisory team to discuss strategies and ensure compliance with current tax laws before year-end in case any adjustments need to be made in advance of spring tax filing season.

As we approach the end of the year, proactive planning is absolutely essential. Engaging in year-end financial strategies can deliver significant value before you get to tax filing season in the spring. By taking action now, you can maximize tax benefits, optimize your investments, and ensure you’re making the most of available opportunities. This planning is essential to avoid missing out on deductions or credits that could positively impact your financial situation. If you’d like to discuss your year-end planning options in detail, pleasereach out.