It’s that time of year—an ideal moment to start your end-of-year tax planning to ensure you’re taking advantage of effective tax strategies to improve your financial situation.
Hi, I’m Alex Wolfe, a certified financial planner and head of financial planning at Base Wealth Management. In this video, I’m going to walk you through my top end-of-year tax strategies.
1. Tax-Loss Harvesting Begin by reviewing your realized gains or losses for the year in your taxable accounts, such as your brokerage account. Next, examine your current holdings and identify any positions that have incurred a loss. You may need to look at individual lots, especially if you own funds or stocks purchased at different times. While you might have an overall gain in a position, certain tax lots may have a loss that you could utilize. The key is to find ways to offset gains with these losses to minimize your capital gains. Be sure to avoid creating a wash sale, which occurs when you sell a position for a loss but repurchase the shares within 31 days, thereby voiding the loss until you sell the shares again.
2. Managing Mutual Fund Capital Gains Distributions If you own mutual funds in your taxable account, you may receive capital gains distributions toward the end of the year. Most funds provide a website where you can view the expected capital gains distributions, helping you anticipate what’s coming your way. You might consider selling the fund to avoid the distribution and then buying it back in January or after the gain is paid out. Again, be sure to avoid a wash sale.
3. Maximizing Retirement and HSA Contributions Although not required to be completed by December 31st, it’s important to ensure your retirement account contributions and Health Savings Account (HSA) contributions are made before you file your taxes, if you’re eligible for those deductions. If you’re in a high tax bracket and reducing your tax liability is crucial, consider maxing out your 401(k) or IRA. Additionally, if you’re on a high-deductible medical plan, contributing to your HSA can provide a triple tax advantage strategy. Click the pop-up banner above to watch a video on HSAs.
4. Donating to Qualified Charities A potential way to save on taxes is to donate to qualified charities. This strategy is particularly beneficial for older individuals who have a required minimum distribution (RMD) and do not need the full distribution for living expenses. You can donate up to $100,000 from your IRA to a qualified charity to reduce your taxable income. This approach is far more advantageous than writing a check from your checking account to the charitable organization.
So, there you have it—my top tax strategies for the end of the year. These are just a few ways to help you save on taxes. If you want to discuss tax strategies or have us review your finances, be sure to visit our website to book an appointment. I’m Alex Wolfe, Certified Financial Planner. Thanks for watching, and we’ll see you in the next video for more financial planning tips.
