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‘Tis The Season For Tax Planning: Tips For The End Of The Year

By Shawn Stone

As the year draws to a close, getting your finances in order is a great way to end on a high note and have a strong start for the new year. When the holidays approach and you’re in the festive spirit, it can be very tempting to put financial planning for the next year on the back burner. In my opinion, delaying it, however, can lead to long-term financial problems.

Making informed decisions and effectively allocating resources may help save you money, time and stress. And the financial decisions you make between now and the end of the year could have a significant impact on your taxes come spring. If you’re saving for retirement or currently enjoying your retirement, this can be especially true. Before you get caught up in the hustle and bustle of the holidays, we’ve outlined some tips to keep in mind that may be helpful in your end-of-year planning:

  1. Withdraw RMDs before year-end. For those who are over the age of 72, you must take required minimum distributions (RMDs) from retirement accounts like employer-sponsored retirement plans or IRAs by December 31. Failure to do so can result in a hefty 50% penalty by the IRS on the RMD amount.
  2. Find ways to reduce your 2023 income taxes. Contributions to retirement plans are often recommended as a way to reduce a tax bill because that income is not subject to tax until you make withdrawals after age 59 ½. A traditional IRA lowers your total taxable income because it is a pre-tax contribution. Therefore, no matter whether you itemize or take the standard deduction, your income taxes will be lower. Roth IRAs can be a useful tool to lower your tax bill in your golden years even if they don’t affect your income bracket in the year withdrawals are made.
  3. Make a charitable donation or gift. Giving is something some may feel called to do during the holidays. Beyond helping others, there are financial benefits to being charitable, including lowering your taxes. Aside from donating to charities, people can give gifts to their family members and friends. There are two numbers to pay attention to when it comes to gifting for 2022: $16,000 and $32,000. For 2022, an individual can make an annual gift of $16,000 to one person and a couple can make an annual gift of $32,000 to one person with no estate or gift tax consequence.
  1. Talk with your family.

We know talking about finances can be uncomfortable for some but having a plan in place and informed beneficiaries can be helpful for generational wealth. When family is gathered at year-end and for the holidays, we recommend using the time to discuss plans, preferences and matters that may impact them like wills and trusts.

There are plenty of complexities when it comes to planning for your financial future. But we believe delaying the planning process is a major misstep. We think the sooner you start planning for the future, the better. We want you to enjoy the holidays and kick off the New Year right.

Want help determining your next course of action for your plan? Talk with one of our advisors to learn more.