Hi everyone, I’m Bette Hochberger, CPA, CGMA. For today’s Tax Tip Tuesday, I want to discuss year-end tax planning.  As the calendar inches closer to December 31st, taxpayers have a valuable opportunity to take control of their financial destiny by engaging in effective year-end tax planning.

 Proactive tax planning can yield substantial savings and help you optimize your tax position. So, let’s go ahead and get into practical advice and actionable strategies to make the most of your year-end tax planning efforts. From accelerating or deferring income to maximizing retirement contributions and capitalizing on tax credits and deductions, I’ve got you covered!

Income Acceleration and Deferral Strategies

One of the fundamental principles of year-end tax planning is managing your income. By thoughtfully accelerating or deferring income, you can manipulate your taxable income for the current year. Consider these strategies:

 Accelerating Income:

  •  Invoice clients early: If you’re a self-employed individual, consider sending invoices to your clients before year-end to ensure the income is recorded in the current tax year.
  • Exercise stock options: If you hold stock options, exercising them before year-end can lead to recognizing the income in the current year.

Deferring Income:

  • Delay billings: If you’re self-employed, postpone sending invoices until the following year to defer income.
  • Timing investments: Hold off on selling investments with gains until the new year to delay recognizing capital gains.

Retirement Contribution Maximization

Contributing to retirement accounts is not only a savvy financial move but can also provide significant tax benefits. As part of your year-end tax planning, consider these steps:

Contribute to Traditional IRA or 401(k):

  • Max out your contributions: Ensure you contribute the maximum allowable amount to your traditional IRA or employer-sponsored 401(k) plan.
  • Catch-up contributions: If you’re over 50, take advantage of catch-up contributions to boost your retirement savings.

  Consider Roth IRA Conversions:

  • Convert traditional IRA funds: Assess the benefits of converting a portion of your traditional IRA to a Roth IRA, potentially allowing for tax-free withdrawals in retirement.

Capitalizing on Tax Credits and Deductions

Year-end presents an excellent opportunity to leverage tax credits and deductions to reduce your tax liability. Here’s how:

 Charitable Contributions:

  • Donate to qualified charities: Make charitable contributions before year-end to claim deductions on your tax return.
  • Gift appreciated assets: Donate appreciated stocks or other assets to charitable organizations to potentially avoid capital gains taxes.

Prepaid Expenses:

  •  Pay deductible expenses early: Consider prepaying deductible expenses like mortgage interest or property taxes to increase your itemized deductions for the current year..

Year-end tax planning is a proactive approach that can lead to substantial tax savings and a more optimized financial position. By strategically managing your income, maximizing retirement contributions, and taking advantage of tax credits and deductions, you can set yourself up for a more favorable tax outcome. Schedule a meeting with me here to start your year-end tax planning today! 

As always, stay safe, and I’ll see you next time!