Tax-Planning: Your Year-End Checklist

Year-end tax planning is an important aspect of your comprehensive financial plan for 2024 and beyond.
Beau Bryant

Beau Bryant

As the New Year approaches and the busy holiday season is upon us, your year-end tax planning may not be top of mind. You may well want to put off this work until January 1st or even April 15th, but doing this could lead you to overpaying – or facing anxiety about getting everything completed in time. We’ve put together this practical checklist of actions that you can take before the end of the year to minimize your tax liability. Consider these actions for a strong financial start to 2024.

Year-End Tax Planning Step #1: Income and Deductions

You may have received income from more than one source in 2023. It’s important to understand the potential deductions that each type may offer. Most year-end income and deduction forms are made available no later than January 31st.

  • Form W-2: This document outlines income earned from wages, salaries, bonuses, and tips.
  • Form 1099-DIV: This form reports dividends and investment distributions.
  • Form 1099-R: This form reports any distributions taken from various retirement accounts including annuities, profit-sharing plans, IRAs, insurance contracts, and pensions.
  • Form 1099-INT: This document is used by financial institutions and other entities to report interest income paid. If you received interest of at least $10 throughout the year, you should expect to receive a copy of this form.
  • Form 1099-MISC: This form outlines various forms of miscellaneous income, including rent, prizes, and awards. If you were paid at least $10 in royalties, or $600 in miscellaneous income throughout the year, you should expect to receive a copy of this form.
  • Form 1099-NEC: If you are an independent contractor, freelancer, sole proprietor, or self-employed individual, you will receive this form from any businesses that have paid you at least $600 during the year.
  • Form 1095-A: This is the Health Insurance Marketplace Statement and it is sent to individuals who have qualified coverage through a Health Insurance Marketplace carrier. Those who receive coverage from the Marketplace may be eligible for subsidized coverage or a tax credit.
  • Form 1098: This document outlines any mortgage interest or property taxes paid over the previous year. It will be sent to you by your lender, if applicable. Mortgage interest and property taxes are deductible expenses if you itemize.
  • Form 1098-T: This statement reports any qualified educational expenses paid throughout the year. This includes tuition, fees, and required course materials. If you paid qualified educational expenses for yourself or a dependent child, you may be eligible for certain education tax credits.
  • Form 1098-E: If you paid more than $600 in student loan interest throughout the year, you will receive this form. Student loan interest is an above-the-line tax deduction.

SEE ALSO: Why Tax Planning is an Important Part of Your Financial Plan

 Year-End Tax Planning Step #2: Investments

If you have investments, there are a number of ways this can impact your tax liability. Here are a few things you’ll want to keep in mind:

  • Tax Loss Harvesting: If you have unrealized losses in your taxable investment accounts, you may be able to offset the taxes owed on capital gains. If you have capital losses greater than your total capital gains, you can use the loss to reduce ordinary income by up to $3,000. With this strategy, investors can realize significant savings.
  • Net Investment Income Tax: You may be subject to an additional 8% tax on net investment income if your modified adjusted gross income exceeds $200,000 for single taxpayers or $250,000 for married taxpayers. If you know you will be subject to this tax, consider the possibility of deferring investment income to other years.
  • Rebalance Your Portfolio: Consider rebalancing your asset allocations if they are no longer in line with your investment objectives. This is particularly important if you have a concentrated equity position that may expose your portfolio to unnecessary risk. In other words, make certain you don’t have all your eggs in one basket.
  • Stock Options and AMT: Certain investments, like incentive stock options, can impact your alternative minimum tax liability. It’s important to review this before finding yourself caught off guard during tax season. A qualified financial professional can answer questions you may have on this topic.

Year-End Tax Planning Step #3: Retirement

While having a retirement plan is an important way to save for the future, it is also a helpful tool in minimizing your tax liability. As the New Year approaches, be sure to consider the following steps:

  • Maximize Retirement Contributions: If you have access to an employer-sponsored retirement plan such as a 401(k), 403(b), or 457 plan, maximizing your retirement contributions can save you on taxes. That’s because contributions are considered pre-tax and will directly reduce your taxable income at the end of the year. You can contribute up to $22,500 with additional catch-up contributions of $7,500 for those over the age of 50. Note that contributions must be made before December 31st.
  • Consider a Roth Conversion: Converting pre-tax funds to a Roth account can be a tax-efficient strategy if you are in a lower tax bracket. Since the funds will be taxable in the year of conversion, be strategic about your timing. Once funds are converted, they will grow tax-free with no required minimum distributions.
  • Take Your Required Minimum Distributions: Once you reach age 72, RMDs must be taken from all qualified retirement accounts except Roth IRAs. You have until April 1st of the year following the year in which you turn age 72 to take your first distribution. Every year thereafter, you must take your RMD by December 31st. Be sure to stay keep your eye on these, because if you fail to withdraw the full amount by the due date, the amount not withdrawn is subject to a 50% excise tax.

SEE ALSO: Charitable Giving Strategies for the End of the Calendar Year

Year-End Tax Planning Step #4: Charitable Giving

Giving back to causes and organizations you care about can have positive impacts in many ways. Many strategies can be used to reduce your tax bill while doing good at the same time. Consider the following:

  • Gifting Appreciated Assets: Donating highly appreciated assets that have been held for longer than one year has the potential to maximize your charitable contributions while minimizing your tax liability. You can typically avoid capital gains tax on these assets if you donate them to the charity directly, as opposed to selling and then donating the proceeds, so keep this in mind.
  • Bunching Donations: If you’re not familiar with this concept, you may want to consider ‘bunching’ multiple years of charitable donations into one tax year if your current deductions are below the standard threshold. This strategy allows you to consolidate your donations for two years into a single year to maximize your itemized deductions for the year you make your donations.
  • Taking a Qualified Charitable Distribution (QCD): If you are due to take an RMD that you won’t need to cover your expenses, consider a QCD instead. It allows you to donate to a 501(c)(3) organization that you care about while reducing your overall tax liability. You can make a distribution of up to $100,000 from an IRA to a qualified charity that counts towards your RMD – and it won’t be considered taxable income.
  • Consider Using a Donor Advised Fund: A donor-advised fund (DAF) is a giving account that is established at a public charitable foundation. It allows you to make a charitable contribution, receive a tax deduction, and then recommend grants from the fund to the charities of your choice over time. 

Are You Ready for Your Year-End Tax Planning?

Tax planning is complex, and the steps above may not cover all your needs or complement your overall financial planning goals. If you’d like professional guidance on your personal financial moves at year’s end, contact us today. At Resolute Wealth Advisor, our team can help guide you through the New Year and beyond, and we look forward to hearing from you!

The views expressed represent the opinion of Resolute Wealth Advisor, Inc. (RWA). The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While RWA believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and the RWA’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.

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