Essential Considerations for Effective Year-End Tax Planning

As the year draws to a close, effective year-end tax planning becomes crucial to managing your financial future. At JTM Williams Capital Management, we specialize in helping individuals and businesses optimize their tax strategies. 

With changes in income, deductions, and tax laws, it's essential to review your financial situation before the calendar turns. 

In this blog, we will introduce a few things to consider for year-end tax planning and how working with JTM can help you make the most of your year-end tax planning. 

Things to Consider for Year-End Tax Planning

Maximize Contributions to Tax-Advantaged Accounts

One of the most effective strategies for year-end tax planning is to maximize contributions to tax-advantaged accounts. For 2024, you can contribute up to $23,000 to your 401(k) if you're under 50 or $30,500 if you're 50 or older, thanks to catch-up contributions. Contributions to a traditional IRA, capped at $6,500 (or $7,500 for those 50+), also reduce your taxable income if you meet the income eligibility limits for deductibility.

Health Savings Accounts (HSAs) are another powerful tool to consider during year-end tax planning. For 2024, you can contribute up to $4,150 for individual coverage or $8,300 for family coverage, with an additional $1,000 catch-up if you're 55 or older. Contributions are pre-tax and grow tax-free, and withdrawals for qualified medical expenses are also tax-free, offering a triple tax advantage.

Maximizing these contributions as part of your year-end tax planning not only reduces your current tax burden but also helps secure your financial future.

Perform a Roth Conversion  

As part of your year-end tax planning, consider converting funds from a traditional IRA or 401(k) into a Roth IRA if your taxable income is lower this year. This strategy can help you optimize your tax situation by paying taxes on the converted amount at a potentially lower rate now. Once converted, the funds grow tax-free, and future withdrawals during retirement—both the contributions and earnings—will also be tax-free, provided certain conditions are met.  

Including a Roth conversion in your year-end tax planning can offer long-term benefits, such as tax-free retirement income and reduced taxable income for your heirs, making it a smart estate planning strategy. 

Be sure to evaluate how this move fits into your overall year-end tax planning goals and consult a financial advisor to ensure it aligns with your financial objectives.

Leverage Tax-Loss Harvesting

Tax-loss harvesting is a valuable strategy for year-end tax planning that helps reduce your taxable income by offsetting capital gains with investment losses. To implement this, consider selling underperforming investments before the end of the tax year to realize losses. These losses can be used to offset capital gains, and if your losses exceed your gains, you can deduct up to $3,000 against other income ($1,500 if married filing separately). Any remaining losses can be carried forward to future tax years.

It's essential to stay mindful of the wash-sale rule when engaging in tax-loss harvesting. This rule prohibits repurchasing the same or a "substantially identical" investment within 30 days before or after the sale. Violating this rule will disallow the loss for tax purposes, undermining your year-end tax planning efforts.

Strategically using tax-loss harvesting not only minimizes your tax liability but also aligns your portfolio with your long-term financial goals. Make this part of your year-end tax planning checklist for a more tax-efficient approach to managing your investments.

Bunch Charitable Contributions

If you typically take the standard deduction, you may not be able to claim your charitable contributions. However, bunching charitable contributions—making several years' worth of donations in a single year—can help you exceed the standard deduction threshold and maximize your itemized deductions. This strategy is particularly effective for year-end tax planning, as it allows you to strategically time your contributions for greater tax efficiency.  

Using a Donor-Advised Fund (DAF) can streamline this process. With a DAF, you can make a lump-sum contribution to the fund during your year-end tax planning, which qualifies for an immediate tax deduction. You can then distribute the funds to your chosen charities over time, providing flexibility and ongoing philanthropic support.  

This approach is ideal for taxpayers who wish to maximize the impact of their charitable giving while reducing their taxable income as part of a comprehensive year-end tax planning strategy.

Review and Adjust Your Strategy for Year-End Tax Planning

Working with JTM Williams Capital Management means having a dedicated partner who understands the complexities of year-end tax planning and can help you navigate them with confidence. 

Our team works closely with you to review your financial situation, identify opportunities to optimize your tax strategy and keep your tax liability effectively managed. Whether it's adjusting withholding, making estimated tax payments, or planning for future growth, we tailor our services to meet your unique needs.

Let us help you take control of your financial future—contact JTM Williams Capital Management today to start planning for tomorrow.