End-of-Year Tax Planning: 7 Tips

The final weeks of the year are always busy – between holiday festivities and various last-minute activities. Before you know it, tax season will be upon us.  Use these end of year tips to ensure all your tax planning boxes are checked.

7 Year-end Tax Planning Tips

1. Check on those RMDs

For folks aged 72 and above, it’s a good idea to confirm all required minimum distributions (RMDs) were appropriately taken before year-end.  Remember, there is a hefty 50% penalty of the total amount of all undistributed RMDs.

2. Complete gains/loss harvesting

Tax-loss and tax-gain harvesting is a simple way to optimize your tax return, especially in years like 2023 when there’s been disparity in returns of different asset classes.  Now is an opportune time to rebalance your portfolio while considering the tax implications of any adjustments.

3. Make Qualified 529 Distributions

If you have students in college, be sure you’ve taken 529 withdrawals for all qualified expenses prior to December 31.  To be eligible, the withdrawals must occur in the same calendar year as the qualified expense.

4. Consider making charitable contributions

Charitable giving must be completed by December 31st to count toward that year’s taxes.  If you anticipate opening and/or contributing to a Donor-Advised Fund (DAF), the fund must be created and funded prior to year-end.

5. Consider converting traditional IRA funds to a Roth IRA

If you are considering executing a Roth IRA conversion, it too must be completed prior to December 31^st.  If you experienced a lower income year which results in you being in a lower tax bracket than what you are projected to be in the future, now may be an opportune time to consider a Roth conversion, especially accounting for market returns this year.

Performing a Roth conversion during a low-income year can result in lower lifetime taxes if that same income would be taxed at a higher rate later.

6. Check on age-related milestones

With each new year comes the chance that you could reach age-related financial milestones.  As you wrap up your yearly tasks, take a moment to consider whether you will qualify for any of the following next year:

• RMDs
• Qualified Charitable Distributions
• Social Security claiming
• Catch-up contributions for retirement plans
• Medicare surcharge issues

7. Top off annual contributions to IRAs, Health Saving Accounts, 529 plans, etc.

Although contributions to IRAs and HSAs for the current year can be made as late as next April 15th, you may want to complete it now.  529 plans don’t have the same contribution extension into the next calendar year – they must be completed by December 31^st.

The holiday season is always bursting with activity.  With these seven tax planning tips, you can wrap up your yearly tax activities and avoid the last-minute rush.