As the year winds down and holiday season sneaks into view, there’s one thing that may not be
so fun to do but can be super beneficial to preserving your wealth. While we believe that tax-
planning is a year-round event, there are some end-of-year tax planning moves that can lead to
significant savings. Here are some considerations that could help make the most of the current
tax year.
Leveraging Tax Loss Harvesting to Offset Gains
Tax loss harvesting is a proactive strategy that allows you to sell investments at a loss to offset
gains in other areas of your portfolio. This approach can minimize your taxable capital gains,
lowering your overall tax burden for the year. For example, if you’ve realized gains from
successful investments, tax loss harvesting allows you to balance those gains by selling
underperforming assets. This strategy is especially effective when done with a long-term
perspective; you can offset gains by carefully selecting which assets to sell, potentially reducing
the tax impact on your portfolio. Keep in mind the “wash sale” rule, which disallows claiming a
loss if you repurchase the same or a substantially identical asset within 30 days.
Monitoring Capital Gains Distributions
Mutual funds and other managed investment vehicles often distribute capital gains at the end of
the year. Many investors are caught off guard by these distributions, which can lead to
unexpected taxable income even if you did not sell any shares. Monitoring anticipated
distributions allows you to make timely adjustments, perhaps by shifting funds or tax-deferred
accounts or reducing holdings in a fund with high potential distributions before they’re issued.
By planning ahead, you can avoid incurring additional taxes from distributions, maximizing your
after-tax return.
Maximizing Retirement Contributions for Tax Benefits
Another impactful strategy for end-of-year tax planning is maximizing contributions to tax-
advantaged retirement accounts like 401(k)s, IRAs, and HSAs. These accounts not only help you
save for the future but can also provide immediate tax benefits by reducing your taxable income.
For instance, maximizing your 401(k) contributions can lower your taxable income by up to
$22,500 for 2024 ($30,000 if you’re over 50). Contributions to a traditional IRA may also be
deductible depending on your income level, providing additional tax savings. By reviewing your contributions and topping off your accounts by the year’s end, you can ensure you’re taking full
advantage of these tax-saving opportunities.
Charitable Distributions and Deductions
Charitable giving offers both a meaningful way to support causes you care about and an
opportunity for tax deductions. If you’re over 70½, consider using a qualified charitable
distribution (QCD) to donate directly from your IRA to a charity. A QCD not only counts toward
your required minimum distribution (RMD) but also reduces your taxable income, providing a
dual benefit. For those not eligible for a QCD, donating appreciated assets like stocks can also be
a tax-savvy move; this approach lets you avoid capital gains taxes on appreciated assets while
still receiving a deduction for the asset’s fair market value.
For those who choose to itemize deductions, charitable contributions can provide a significant
benefit. By bunching donations—donating multiple years’ worth of contributions in a single
year—you might exceed the standard deduction, maximizing your tax benefits for the current
year.
Balancing Tax and Financial Goals
It’s essential to approach these end-of-year strategies with a balanced mindset. While reducing
taxes is valuable, it’s equally important to make decisions that align with your financial goals.
For instance, harvesting losses in assets you plan to hold for the long term might not always align
with your investment strategy. Similarly, funding retirement accounts to lower taxes should still
align with your retirement timeline and income needs. Working with a financial advisor can help
you find the optimal mix of tax efficiency and growth, ensuring your choices support your long-
term objectives.
The Importance of a Year-End Review
Finally, a year-end financial review can help ensure you’ve addressed all aspects of your tax and
investment strategy. Reviewing your portfolio, capital gains exposure, and charitable intentions
now provides an opportunity to optimize your financial plan for the coming year. These end-of-
year actions can be a powerful way to reduce taxes, meet your retirement goals, and contribute to
the causes you care about, setting a strong foundation for the future.
By taking a few proactive steps now, you can minimize your tax burden, align your investments
with your goals, and feel confident heading into the new year with a well-prepared financial
plan.
Getting the Help of a Financial Adviser
Navigating end-of-year tax planning can be complex, especially when it comes to
balancing multiple strategies that impact both your current tax bill and your future financial
health. A financial adviser can help you make sense of these options, ensuring that your choices
not only maximize tax benefits but also align with your broader goals. By working together, you
can develop a customized approach that keeps you on track, both financially and personally.
Ready to get started? Schedule your PersonalPath Intro Call today and take the first step toward a
tax-smart strategy for the year ahead.
