Year-End Planning Checklist
As we approach the end of the year, it's a great time to review your financial situation and optimize your planning matters. Here’s a comprehensive checklist to help you take advantage of potential planning and year-end deadlines.
1. Review Required Minimum Distributions (RMDs)
If you're 73 or older, ensure you take your RMD by December 31. Consider making Qualified Charitable Distributions (QCDs) from your IRA, which can count toward your RMD up to $105,000. Even if you’re 70½, you can use QCDs to donate to eligible charities, regardless of whether you need to take an RMD.
Remember, inherited accounts may have specific RMD rules, so checking your status is essential.
2. Maximize Retirement Contributions
Ensure you’re maximizing your 401(k) or IRA contributions. Contributions to these accounts can lower your taxable income:
— Employee contributions to employer-sponsored plans typically need to be made by December 31.
— You can contribute to IRAs until April 15, but tax deductibility may vary based on your income and employer plan coverage.
If you’re 50 or older, consider catch-up contributions. We can also discuss your retirement strategy and whether adjustments are needed as you approach retirement.
3. Optimize Your Health Savings Account (HSA)
Maximize your HSA contributions before the April 15 tax filing deadline if you're eligible. If you're over 55, you can contribute an extra $1,000. Remember, HSAs offer tax-free growth and withdrawals for qualified medical expenses.
4. Consider Education Savings Contributions
Explore contributing to a 529 plan or Coverdell ESA for education expenses. Most states have a December 31 deadline for state tax benefits, though some extend to April 15. We can review the specific advantages these accounts offer.
5. Manage Your Investment Portfolio
Look for tax-loss harvesting opportunities by selling losing investments to offset gains. You can offset up to $3,000 of ordinary income if you have more losses than gains.
Also, consider:
— The wash-sale rule when selling securities.
— Your overall asset allocation and risk tolerance.
— Using proceeds from rebalancing or distributions to meet cash flow needs.
6. Evaluate a Roth Conversion
A Roth conversion may be wise if you're worried about future tax rates. It can help you lock in today’s rates and minimize future RMD impacts. Let’s discuss how to manage the tax implications of a conversion while balancing your overall tax situation.
7. Plan for Income and Tax Bracket Management
We can help you strategize your income to stay within your desired tax bracket. Consider:
— Exercising nonqualified stock options (NQSOs) strategically.
— Reviewing projected income for next year to optimize for potential ACA subsidies.
8. Explore Charitable Giving Strategies
If you’re planning to make charitable contributions, we can discuss:
— The tax benefits of cash versus appreciated asset donations.
— The advantages of donor-advised funds for flexible giving.
— Strategies like bunching contributions to maximize itemized deductions.
9. Take Advantage of Gifting Opportunities
Consider making annual exclusion gifts of up to $18,000 per person in 2024 to reduce your estate tax liability. Ensure your estate plan is updated and aligned with your current goals. Also, let’s review how much of your lifetime estate and gift tax exemption you’ve used (up to $13.61 million per person in 2024).
10. Understand Washington State's Long-Term Capital Gains Tax
If you're a Washington State resident, be aware of the long-term capital gains tax enacted in 2022. This excise tax applies to individuals with capital gains exceeding $262,000 in a calendar year, taxing gains above this threshold at a rate of 7%.
Key points to consider:
— Exemptions: Certain capital gains, such as those from retirement accounts, the sale of your primary residence, and specific agricultural sales, are exempt. Understanding what qualifies can help you strategize effectively.
— Tax Planning Strategies: If you're nearing the $262,000 threshold, consider options to manage or defer your gains. This might involve timing the sale of investments or utilizing tax-advantaged accounts to minimize your taxable income.
— Review Your Portfolio: Assess your investment portfolio for potential capital gains. If you're close to the threshold, tax-loss harvesting—selling underperforming investments to offset gains—could be a valuable strategy to reduce your taxable income.
Incorporating this into your year-end planning can help mitigate the impact of the new tax and enhance your overall financial strategy.
Feel free to reach out if you have any questions or need assistance with these strategies. Let’s make the most of your year-end tax planning!
