Year End Planning for Individuals

The end of the year is a crucial period for financial planning. It is a time to reflect on the past year, review your financial situation, and prepare for the upcoming year. The strategies you implement now can have a significant impact on your financial health. Below are some strategies that you may consider for your year-end tax planning.

General Planning
One of the most basic strategies in tax planning is managing your income and deductions. If you anticipate a lower tax bracket in the upcoming year, it may be beneficial to defer income into the next year and accelerate deductions into the current year. This strategy can help minimize taxes. Additionally, try to bunch deductible expenses and charitable donations into either this year or the next to maximize deductions.

Strategies for High-Income Taxpayers
For high-income taxpayers, the strategy may need to be the opposite. If you expect higher income in the following year, it could be beneficial to pull income into the current year and defer deductible expenses. This can help manage your tax liability by spreading the income over two years.

Managing Investments
Investment management is another crucial aspect of financial planning. One strategy is to generate long-term capital gains to take advantage of the 0% capital gains tax rate. Be cautious not to exceed the maximum taxable income of $89,250 for a married couple, and $44,625 for single filers. However, be cautious about selling assets with capital losses since these will offset your tax-free capital gains.

IRA Planning Strategies
For those with traditional IRAs, there are a couple of potential strategies. If you are aged 70½ or older, consider making charitable donations via qualified charitable distributions from your IRA. This can help reduce your taxable income. Additionally, if you expect to be in the same or higher tax bracket during retirement, consider converting traditional IRAs to Roth IRAs.

Also, remember that if you turn 73 in 2023, you have until April 1, 2024 to take your first required minimum distribution on IRAs.

Gift Tax Considerations
As part of your estate planning, consider utilizing the annual gift tax exclusion, which allows you to give up to $17,000 per recipient without incurring gift or estate taxes. However, be aware that the estate tax exclusion is set to decrease after 2025, which may impact your estate planning strategies.

Other Considerations
There are also a few other considerations for your year-end planning. If eligible in December, consider making full-year deductible HSA contributions for the year. Also, starting in 2023, tax credits are available for the purchase of new and used electric vehicles, which could be an incentive to make a purchase.

It’s important to remember that these strategies are general considerations and may not be suitable for everyone. Therefore, it’s crucial to reach out to your tax advisor for advice tailored to your specific situation. Year-end planning can be a complex process, but with careful consideration and the right strategies, you can position yourself for a financially successful new year.