Tax Moves You Should Be Making Before Year's End, Ep #214

The end of the year is coming up right around the corner, and you know what that means: it’s time for end-of-the-year tax planning! However, this year’s tax planning may look a bit different with new tax legislation making its way down the congressional pipeline. Many wealthy individuals are nervous about what the current regime has in store for them. This is why when I saw the headline Tax Moves Advisors Should Be Making Before Year's End in Financial Advisor Magazine I knew I had to share it with my audience. If the news of the tax legislation has you worried, you won’t want to miss this episode. 

Outline of This Episode

• [2:22] It’s time for year-end tax planning
• [8:53] Why you should donate to charity this year
• [12:44] How to offset future inherited income taxes
• [18:08] How a qualified charitable distribution could help with taxes

Do you have tax-change proposal fatigue?

Keeping up with all the changes in tax legislation over the past few years can be exhausting. It seems like once in a generation tax law changes happen every couple of years. 

One of the most troubling things about new tax legislation is wondering when it will take effect. Will the new law come into play at the end of the year, or will the changes be retroactive? While this can cause a bit of worry there is no sense in speculating. There is only so much that you can do to prepare. 

Realize more income now to be proactive about the potential tax law changes

While we have no idea what the future might hold, we can still have the presence of mind to plan ahead. One way to combat a hefty tax bill next year is to accelerate your income now. 

For instance, if companies typically give bonuses at the beginning of the next year, they could pay those bonuses out in December instead. 

Another way to realize more income sooner rather than later is to close any business sales before the end of the year to lock those earnings in under the current tax law. 

Enter into deduction mode if you are close to retirement

If you are nearing retirement and you know your income will drop once you retire, you should be in deduction mode. Take advantage of HSAs and 401Ks rather than Roth IRAs to reduce your income and maximize your contributions between now and the end of the year 

If your income decreases once you retire then you can start Roth conversions to mitigate the tax deductions you took when you had a higher income. 

Year-end tax tips

If you file the standard deduction, don’t miss out on the charitable deduction of $300 for singles and $600 for married couples. 

If you are able to itemize your deductions and you are charitably minded, consider funding future years' charitable contributions through a donor-advised fund (DAF). If you have highly appreciated stock then you could use it to contribute to charity while also realizing a valuable tax deduction. 

Another way to finish out the year is to anticipate your year’s earnings so that you can fill up your tax bracket with Roth conversions. This is a great way to take advantage of the historically low tax rates. 

Worrying about future changes won’t help at all, instead, do what you can to take advantage of this year’s low tax rates to prepare for an uncertain future.

Resources & People Mentioned

• Tax Moves Advisors Should Be Making Before Year's End

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