The Importance of Year-End Tax Planning
By Brian Famigletti, Managing Director & Head of Marketing
Keep More of What You Make
It’s year-end tax planning time, which means it’s time to cross the T’s and dot the I’s on your wealth and estate strategies.
That is always an important task, but it’s particularly important this year. The November election complicates tax planning, as the outcome could influence the future of temporary tax breaks in the Tax Cuts and Jobs Act (TCJA) of 2017. The TCJA is scheduled to expire at the end of 2025. If it does, the top income tax bracket of 37% will revert to pre-2017 levels of 39.6%, and the current individual lifetime gift exemption of $13.61 million will be roughly halved.
This doesn’t mean that you need to hit the panic button. But it does underscore the importance of meeting with an investment advisor, tax accountant, and estate lawyer before years end, to help determine the best combination of income, retirement, estate, and gifting tax strategies for you.
What Is Year-End Tax Planning?
Tax planning aims to reduce tax payments on income, estate assets, and retirement funds for yourself and your beneficiaries. How you handle your funds this year can lead to benefits in the year ahead and beyond.
At the top level, year-end tax planning involves:
- Lowering your income tax with deductions
- Harvesting investment losses to offset capital gains taxes
- Optimizing retirement accounts to reduce your tax burden later in life
- Gifting money to charities or individuals to reduce estate taxes
There are many ways to optimize your taxes, and with more wealth comes more taxation intricacies. But it’s essential to acclimate yourself to the main pillars of tax planning for your year-end conversations with experts.
Tax Planning Strategies
There are several ways to allocate your funds to optimize your tax payments.
Making gifts to family members or charities is one popular way to remove the future appreciation of assets from your taxable estate. These gifts can include outright transfers of money, transferring cash to trusts, or adding to existing trusts. You have the option to give in cash, securities, or even interests in private businesses.
Related reading: Use SLATs to Transfer Wealth Tax Efficiently
Tax-loss harvesting is another common strategy that can be executed year-round. It involves selling stocks or bonds at a loss to offset taxable gains. The tax loss benefits are only incurred if you do not buy a similar security 30 days before or after the sale.
Investors can also use tax-deferred accounts like traditional IRAs and 401(k)s to defer income tax on investment returns. Experts might also recommend converting your traditional IRA to a Roth IRA to hedge from future and higher tax rates. While this will increase your taxes for the current year, it enables tax-free distributions in the future.
Building wealth brings financial complexities into your life, including more in-depth tax conversations. Thankfully, keeping in-depth financial conversations digestible and productive is our goal at Griffin Asset Management. Reach out today to get started.
Sources:
Forbes: Maximizing Your 2023 Year-End Tax Planning Benefits
BNY Wealth: 2024 Tax Planning Checklist
