- Key Takeaways
- Important Deadlines: Many tax-saving tactics must be executed by December 31st.
- Tax Management: Whether it’s through charitable giving, gift giving, or retirement plan contributions, end-of-year planning is crucial for managing your tax brackets and maximizing tax efficiency.
- Strategies for Business Owners: Business owners have unique opportunities for tax planning at the end of the year, from deferring income to accelerating expenses.
Investment Strategies
Portfolio Rebalancing
Retirement Contributions & Distributions
Have you contributed as much as possible to your tax-advantaged retirement accounts, such as an IRA, Roth IRA, 401(K), and Roth 401(K)? Strategic contributions can help you manage your tax brackets throughout your lifetime. You can also use contributions to help realign your portfolio as necessary.
If you’re a business owner, be sure to look into maximizing your company’s contributions to your 401(K), SEP, or SIMPLE plan for a deduction.
After carefully reviewing your finances, you may want to consider converting tax-deferred funds into post-tax funds via a Roth conversion. This tactic cannot wait until the usual tax deadline. Instead, all conversions must be completed by December 31st, so it would behoove an individual considering a Roth conversion to review and begin the process sooner rather than later.
If you are over 73 years old, you’ll have to remove funds from your non-Roth retirement accounts as part of the necessary Required Minimum Withdrawals (RMDs) required by the IRS. The assets you’ll likely have to sell and the tax you incur from the withdrawal will also affect your tax and investment strategy.
Changing Tax Brackets
Estate Planning
Gift Giving
One excellent method of reducing your estate is to simply gift it away. A gift can be in the form of cash, investments, real estate, an interest in your business, or even artwork, amongst other things. You can give away up to $17,000 in 2023 to whomever you like, but you have to do it before December 31st for it to count.
If you give away more than $17,000 to an individual, you may be able to use the excess amount against your lifetime gift exclusion amount, which currently stands at $12.92 million. The gift tax exemption amount is also set to halve after TCJA expires, so it may be savvy to gift away as much as possible before the exemption limit is reduced.
Charitable Giving
Like gift giving, you can give away your wealth as a series of charitable contributions. And also, just like gift giving, the deadline to make a qualified contribution is December 31st. While there are many ways to give to charity, we won’t cover them all here. However, it’s worth noting that these methods often offer greater flexibility and can cater to a wider range of charitable goals and financial needs compared to traditional gifting.
Depending on the kind of donation and charity, you can deduct up to 60% of your Adjusted Gross Income (AGI) as long as you donate cash and the organization is classified as a qualified organization by the IRS.
Other forms of non-cash donations have different limitations, such as property or investments. Additionally, unlike gift giving, which allows you to donate up to the limit to as many individuals as you like, all donations are cumulative for the year, regardless of the number of charities you donate to. Basically, you can’t donate 50% of your AGI to two different organizations and expect a 100% deduction.
However, if your contributions go over the limit, you may be able to carry over your deductions into future years.
Business Owner Strategies
Deferring Income
Accelerating Expenses
Updating Succession Plans
Life changes like marriages, births, or divorces can significantly affect your business succession plan. It’s crucial to review and possibly adjust your plan to accommodate new family members or changes in business structure, ownership, or management roles. Additionally, these adjustments may provide tax planning opportunities.
It’s also a good time to update your will, reassess designated successors, or reconsider the structure of ownership shares, to ensure that your tax strategy aligns with these changes.
In Conclusion
As the year draws to a close, now is the pivotal moment for Floridians to ensure their wealth management strategies precisely align with upcoming tax brackets and estate law changes. Proactive year-end financial planning, from retirement contributions to strategic gifting, can significantly and positively impact your overall financial health.
Ready to optimize your financial strategy for the year’s end? At WealthGen Advisors, we specialize in crafting bespoke strategies that cater to the unique needs of those heading into retirement, current retirees, and business owners in Sarasota. You can schedule a consultation by clicking the button below.
