7 Steps to Optimize Your Tax Strategy Before Year-End

As you gear up for a busy holiday season, year-end tax strategies tend to take a back seat, right? We get it, and we’re here to provide a summary of helpful year-end tax tips that are simple to implement!   

For successful individuals and families, managing taxes is a nuanced process requiring forward-thinking. By planning in 2024, you can make decisions that will impact the size of the check you may need to write come April 2025. Below, we list a few of the essential strategies you should consider before we ring in the new year: 

1. Maximize Charitable Contributions 

Giving to causes you care about can provide tax benefits. Consider donating appreciated securities instead of cash to maximize your tax deduction while avoiding capital gains taxes. If you are over age 70.5, think also about gifts from your IRA rather than from after-tax assets. A Qualified Charitable Donation, or QCD, can be made directly from your IRA to a Charity. You can also make a charitable gift to your own Donor Advised Fund (DAF) (a charitable account you control) or a Private Family Foundation (PFF) to create a legacy of giving. Charitable planning is an excellent opportunity to engage the next generation in philanthropic efforts, ensuring the causes you care about continue to benefit from your wealth. 

2. Evaluate Trust and Estate Planning Opportunities 

Year-end is an ideal time to revisit strategy around your estate, especially if you’ve experienced any life changes. Reviewing Trust structures, gifting strategies, and estate tax planning can help reduce taxes (both annually as well as estate tax) to preserve more wealth that can pass to future generations. 

Taking advantage of annual gift exclusions or utilizing the current lifetime gift tax exemption to transfer wealth without incurring additional taxes can be an impactful strategy. Trusts, such as Grantor Retained Annuity Trusts (GRATs) or Irrevocable Life Insurance Trusts (ILITs), can be powerful vehicles for asset protection and tax mitigation. 

3. Plan for Capital Gains and Losses 

Hopefully you’ve experienced gains in your investment portfolio over the last couple of years! If you have, and you would like to keep the risk of your investments in line with your objectives, you have likely taken some profits and now have realized capital gains. Proactive tax-loss harvesting (TLH) strategies and direct indexing can help to manage taxes owed on these gains.  When implementing TLH strategies, be mindful of “wash sale” rules, which could disallow a loss if the same or substantially identical asset is purchased within 30 days. Regularly reviewing your portfolio for opportunities to offset gains and losses can be a powerful tool to optimize the risk in your investment allocation without creating material tax implications. 

4. Revisit Retirement Plan Contributions and Distributions 

For individuals with income that exceeds expenses, retirement account contributions should be a strategic part of your tax management plan. While contributions to certain accounts may reduce taxable income today, required minimum distributions (RMDs) from those accounts will likely increase your tax bill in the future. Understanding cash flows today, as well as in the future are critical.  Pretax vs Roth vs Post Tax contributions to 401(k) and 403(b) plans as well as Roth conversions are just 3 options available in many employer plans. For individuals with earned income, don’t forget that regardless of the amount of income you make, you can contribute to an IRA!  Assets growing in retirement plans allow for either tax deferred or tax-free growth.   

5. Consider Tax-Efficient Investment Strategies 

Beyond tax-loss harvesting, explore investment strategies that focus on tax efficiency. Investing in municipal bonds, for example, can provide tax-free income at the federal (and sometimes state) level, which is particularly beneficial to those in higher tax brackets. Treasury Bills, Notes and Bonds provide interest not subject to state tax income. Working with a wealth manager that also focuses on taxes, can provide benefits well beyond an increase in rate of return. 

6. Leverage Business Deductions and Deferrals 

If you own a business, there are many year-end strategies worth considering to optimize your tax situation. Evaluate whether it makes sense to accelerate expenses into the current year or defer income to the next year, effectively managing cash flow and tax obligations. Your CPA should be talking with you about the efficient use of depreciation and cost segregation and not just using these as a ‘magic bullet’ to wipe out taxes. Remember, there is a tax consequence to “depreciation recapture!” Also consider reviewing your entity structure to ensure it aligns with your overall tax strategy, especially if there are potential benefits from pass-through deductions and/or corporate tax planning. 

7. Review Income and Deduction Timing 

Strategically timing income and deductions can have a significant impact on your tax liabilities. Depending on your situation, you may want to defer bonuses or other forms of income to the following year or accelerate business deductions by prepaying expenses. This kind of planning requires a detailed understanding of your current and future tax positions, so it’s crucial to consult with your tax advisor and wealth manager for personalized advice. 

Planning is an Ongoing Process 

There is still time to make strategic moves before year-end! While effective tax planning is a year-round endeavor and proactive tax management can help you keep more of your wealth, it is never too late to start. With thoughtful planning and the right guidance, you can navigate complex tax considerations and optimize your financial outlook for years to come. 

Why Successful People Choose Buttonwood 

Navigating the combination of investments, estate and advanced tax strategies can be complex and time-consuming. At Buttonwood Financial Group, our Team specializes in creating, managing and adapting as needed, custom tax strategies for successful individuals and families. We do this to help ensure our clients are maximizing opportunities without the stress of handling it alone. Here are just a few reasons our clients selected to work with us: 

Expertise 

Our Team, in conjunction with a strong network of CPAs are highly skilled in the latest tax laws and regulations. We stay ahead of changes in the tax code and political landscape, allowing us to regularly provide and implement impactful strategies. 

Customized Solutions 

Every financial situation is unique, so too are the strategies we develop. We take the time to understand your objectives and circumstances, tailoring our approach to ensure each decision supports your broader financial purpose. 

Peace of Mind 

With Buttonwood Financial Group as part of your team, you will approach year-end tax planning confidently. Using advanced tax and planning software designed to uncover opportunities, we identify, review, and implement strategy in conjunction with your tax and legal team. We generate the ideas, crunch the numbers and complete the paperwork, leaving you more time to spend on your priority items. 

Trial Tax Returns 

Are you curious if your current tax strategy is leaving money on the table? Contact us today and let us show you the difference proactive planning can make. We would be happy to begin with a complementary “Trial Tax Return Review,” allowing you to see first-hand how we think and what we do.   

This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.