As the holidays approach, it’s time to consider tax planning moves that will help lower this year’s tax bill, as well as set you up for tax savings in future years. We’ve outlined a few tips to make your year-end tax planning a breeze.
- Boost Your Itemized Deductions
Consider utilizing Donor Advised Funds (DAFs) as a strategy. By timing your contributions from year to year utilizing a DAF account, you can potentially claim the full deduction for that year, optimizing your immediate tax benefits. You then can distribute funds to specific charities over time, simplifying your charitable giving and ensuring you maximize tax advantages. This is a potential strategy if you normally utilize the standard deduction.
2. Manage Your Investment Gains and Losses
Take a look at your investments. If you have realized capital gains in your portfolio, consider whether you can minimize the tax impact by realizing losses from sales on investments that have decreased in value, reducing your overall tax liability. Now is a good time to consult with your investment adviser regarding potential gains and losses in your portfolio.
3. Give to Charities
Donating to charities can be a win-win. If you have underperforming stocks, sell them and donate the proceeds to charities while taking advantage of harvesting capital losses. For stocks that have grown in value, donate them directly to charities to avoid capital gains tax on the appreciation.
4. Share the Wealth with Loved Ones
The same principles apply when gifting to relatives or loved ones. Sell underperforming investments to harvest capital losses and give the cash to your loved ones. Keep in mind the annual gift tax exclusion thresholds.
5. Donate from Your IRA
If you’re 70½ or older, you can donate up to $100,000 annually directly from your IRA to qualified charities. This is a tax-efficient way to give, saving on tax for federal and most states, as you won’t owe income tax on these qualified charitable distributions (QCDs).
6. Consider a Roth IRA Conversion
If you anticipate higher tax rates during retirement, converting a traditional IRA into a Roth IRA could be advantageous. While there’s a tax cost involved, it can hedge against future tax rate increases, as all earnings and withdrawals from a Roth IRA are tax-free under certain conditions.
These year-end tax planning strategies can help you save money and optimize your finances. Consult with your R+R tax advisor to tailor these tips to your unique circumstances.
Reynolds + Rowella is a regional accounting and consulting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve. Our mission is to operate as a financial services firm of outstanding quality. Our efforts are directed at serving our clients in the most efficient and responsive manner possible, delivering services that exceed the expectations of those we serve. The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, please contact Elizabeth Bresnan at 203.438.0161 or email.