Insights

End-of-Year Financial Moves to Consider for a Stronger 2025

Insights

End-of-Year Financial Moves to Consider for a Stronger 2025

Topic(s):

Lifestyle Tax Planning

The end of each year is a natural time for reflection, goal-setting, and taking stock of your financial progress. As we prepare to enter 2025, it’s also the perfect moment to examine key financial strategies that can help you make the most of what you’ve earned, reduce your tax liability, and position yourself for success in the coming year. Let’s dive into some practical moves you can consider before the year ends to maximize your financial opportunities. For a more detailed breakdown of year-end considerations, visit our comprehensive guide here: What Issues Should I Consider Before The End Of The Year.

1. Tax Planning: Strategies for Lowering Your Tax Bill

Taxes can be one of the largest expenses in your financial life, so a proactive approach is critical. Here are some key areas to focus on before the year wraps up:

  • Tax Bracket Management: One common strategy is to avoid “bracket creep,” where earning slightly more money pushes you into a higher tax bracket. If you’re approaching a higher bracket, you can consider deferring some income into 2025 if possible. Alternatively, accelerating certain deductions can keep you within a lower tax rate. For example, suppose you’re near the $191,950 taxable income threshold for the 24% marginal tax rate (or $383,900 if married filing jointly). Any income above that will be taxed at a higher rate of 32%.
  • Capital Gains and Losses: If you have realized capital gains this year, offsetting those with capital losses from underperforming investments in taxable accounts can reduce your taxable income. Remember, you can deduct up to $3,000 of excess losses against ordinary income.
    • Example Scenario: Suppose you’ve sold an appreciated stock, realizing a $10,000 gain. If you also sell a different investment at a $5,000 loss, you’ll only pay tax on the net $5,000 gain.
  • Net Investment Income Tax (NIIT): High earners with a modified adjusted gross income (MAGI) over $200,000 ($250,000 for couples) may face an additional 3.8% tax on net investment income. Strategically managing income and deductions can help minimize or avoid this surcharge.
  • Medicare IRMAA Surcharges: Retirees on Medicare should also be aware of income thresholds that trigger surcharges for Part B and Part D premiums, known as IRMAA (Income-Related Monthly Adjustment Amount). Managing your income around these thresholds can lead to significant savings.

2. Charitable Giving: A Generous Way to Save on Taxes

Year-end charitable contributions are a win-win, allowing you to support causes close to your heart while potentially lowering your tax liability. Consider these strategies:

  • Qualified Charitable Distributions (QCDs): If you’re 70.5 or older, you can make a QCD directly from your IRA, up to $105,000 per year. This amount will not count as taxable income and satisfies your required minimum distribution (RMD).
  • Gifting Appreciated Securities: Instead of giving cash, consider donating appreciated stocks or mutual funds. This allows you to avoid capital gains taxes on the appreciation while still receiving a charitable deduction for the fair market value of the asset.
  • Bunching Contributions: With the standard deduction set at $14,600 for singles and $29,200 for married couples, itemizing may not always be beneficial. By “bunching” multiple years of charitable donations into one year or using a donor-advised fund, you may increase your ability to itemize.

3. Investment Considerations: Fine-Tuning Your Portfolio

The end of the year is the perfect time to ensure your investments align with your long-term goals and that your portfolio is tax-efficient:

  • Tax Loss Harvesting: Beyond offsetting gains, tax-loss harvesting can be used to replace underperforming assets with similar investments, maintaining your portfolio’s overall strategy while creating tax savings.
  • Capital Gain Distributions from Mutual Funds: Be on the lookout for mutual funds making large capital gain distributions. These gains, passed on to shareholders, can create unexpected taxable income even if you didn’t sell any shares. Consider selling before the distribution date or investing in tax-efficient funds to minimize the impact.
  • Rebalancing: Market performance over the year may have caused your portfolio to drift from your target allocation. The end of the year is a good opportunity to rebalance, selling appreciated assets (especially in taxable accounts) to bring your allocation back in line with your goals.

4. Retirement Accounts: Contributions, Conversions, and Distributions

Maximizing the benefits of your retirement accounts requires careful year-end planning:

  • Max Out Contributions: Ensure you’ve made the maximum allowable contributions to your 401(k), IRA, or HSA for the year. If you’re 50 or older, take advantage of catch-up contributions. The limits for 2024 are $23,000 for 401(k) contributions with an additional $7,500 catch-up contribution.
  • Roth Conversions: Consider converting a portion of your traditional IRA to a Roth IRA. You’ll pay taxes on the amount converted now, but future withdrawals (including growth) will be tax-free. This strategy is particularly useful if you expect to be in a higher tax bracket later.
  • RMDs: If you’re over age 73, you must take RMDs from traditional IRAs, 401(k)s, and similar accounts. Ensure you calculate and withdraw the correct amount to avoid steep penalties. Keep in mind that RMDs from multiple IRAs can be aggregated, but this does not apply to inherited IRAs or most employer plans.

5. Business Owners: Optimizing Tax Strategies

Running a business introduces unique tax planning opportunities and challenges:

  • Qualified Business Income Deduction (QBI): If you have a pass-through entity, such as an LLC or S-corp, you may qualify for a 20% QBI deduction. Ensure you meet eligibility requirements and consider strategies to maximize this benefit.
  • Roth vs. Traditional Contributions: Business owners should evaluate whether making Roth or traditional retirement plan contributions aligns better with their current and expected future tax situation.
  • Accelerating or Deferring Expenses: To manage taxable income, you can defer or accelerate business expenses based on your expected income in future years.

6. Health Savings and Flexible Spending Accounts: Smart Healthcare Moves

Health-related accounts offer valuable tax advantages but come with year-end deadlines:

  • HSA Contributions: Max out contributions to your HSA if you’re covered by a high-deductible health plan. Contributions are tax-deductible, grow tax-free, and can be used tax-free for qualified medical expenses.
  • Flexible Spending Accounts (FSAs): Check your FSA balance. Some plans allow you to roll over a portion of unused funds, while others provide a grace period for using leftover money. Make sure you understand your employer’s rules to avoid losing funds.

7. Estate Planning and Family Considerations

Year-end is a great time to revisit your estate plan and ensure it reflects your current wishes:

  • Annual Gifting: The annual gift tax exclusion lets you gift up to $18,000 per person without triggering any tax. This can be a powerful way to transfer wealth to family members or loved ones.
  • 529 Plan Contributions: Consider contributing to 529 education savings plans. You can gift up to $90,000 per beneficiary with a five-year election, providing a valuable tax-advantaged way to save for education.
  • Review and Update Documents: Have you experienced changes in marital status, the birth of a child, or the passing of a loved one this year? Updating your estate plan ensures that your documents align with these changes and reflect your current wishes.

8. Preparing for New Laws and Life Changes

Finally, it’s important to stay informed about potential changes in tax law or other regulations that may impact your financial plan for 2025 and beyond. Working with a financial advisor can help you stay on top of relevant updates and ensure your plan is as effective as possible.

Closing Thoughts: Take Charge of Your Financial Future

With a little proactive planning, you can end 2024 on a high note, knowing you’ve made strategic moves to enhance your financial health. At Suttle Crossland, we’re here to guide you through this process and help you align your actions with your goals. Whether it’s tax strategies, investment rebalancing, retirement account optimization, or estate planning, our aim is to empower you for a financially secure and prosperous 2025.

Ready to plan together? Contact us to schedule a year-end review and start 2025 with confidence.

Topic(s):

Lifestyle Tax Planning

The end of each year is a natural time for reflection, goal-setting, and taking stock of your financial progress. As we prepare to enter 2025, it’s also the perfect moment to examine key financial strategies that can help you make the most of what you’ve earned, reduce your tax liability, and position yourself for success in the coming year. Let’s dive into some practical moves you can consider before the year ends to maximize your financial opportunities. For a more detailed breakdown of year-end considerations, visit our comprehensive guide here: What Issues Should I Consider Before The End Of The Year.

1. Tax Planning: Strategies for Lowering Your Tax Bill

Taxes can be one of the largest expenses in your financial life, so a proactive approach is critical. Here are some key areas to focus on before the year wraps up:

  • Tax Bracket Management: One common strategy is to avoid “bracket creep,” where earning slightly more money pushes you into a higher tax bracket. If you’re approaching a higher bracket, you can consider deferring some income into 2025 if possible. Alternatively, accelerating certain deductions can keep you within a lower tax rate. For example, suppose you’re near the $191,950 taxable income threshold for the 24% marginal tax rate (or $383,900 if married filing jointly). Any income above that will be taxed at a higher rate of 32%.
  • Capital Gains and Losses: If you have realized capital gains this year, offsetting those with capital losses from underperforming investments in taxable accounts can reduce your taxable income. Remember, you can deduct up to $3,000 of excess losses against ordinary income.
    • Example Scenario: Suppose you’ve sold an appreciated stock, realizing a $10,000 gain. If you also sell a different investment at a $5,000 loss, you’ll only pay tax on the net $5,000 gain.
  • Net Investment Income Tax (NIIT): High earners with a modified adjusted gross income (MAGI) over $200,000 ($250,000 for couples) may face an additional 3.8% tax on net investment income. Strategically managing income and deductions can help minimize or avoid this surcharge.
  • Medicare IRMAA Surcharges: Retirees on Medicare should also be aware of income thresholds that trigger surcharges for Part B and Part D premiums, known as IRMAA (Income-Related Monthly Adjustment Amount). Managing your income around these thresholds can lead to significant savings.

2. Charitable Giving: A Generous Way to Save on Taxes

Year-end charitable contributions are a win-win, allowing you to support causes close to your heart while potentially lowering your tax liability. Consider these strategies:

  • Qualified Charitable Distributions (QCDs): If you’re 70.5 or older, you can make a QCD directly from your IRA, up to $105,000 per year. This amount will not count as taxable income and satisfies your required minimum distribution (RMD).
  • Gifting Appreciated Securities: Instead of giving cash, consider donating appreciated stocks or mutual funds. This allows you to avoid capital gains taxes on the appreciation while still receiving a charitable deduction for the fair market value of the asset.
  • Bunching Contributions: With the standard deduction set at $14,600 for singles and $29,200 for married couples, itemizing may not always be beneficial. By “bunching” multiple years of charitable donations into one year or using a donor-advised fund, you may increase your ability to itemize.

3. Investment Considerations: Fine-Tuning Your Portfolio

The end of the year is the perfect time to ensure your investments align with your long-term goals and that your portfolio is tax-efficient:

  • Tax Loss Harvesting: Beyond offsetting gains, tax-loss harvesting can be used to replace underperforming assets with similar investments, maintaining your portfolio’s overall strategy while creating tax savings.
  • Capital Gain Distributions from Mutual Funds: Be on the lookout for mutual funds making large capital gain distributions. These gains, passed on to shareholders, can create unexpected taxable income even if you didn’t sell any shares. Consider selling before the distribution date or investing in tax-efficient funds to minimize the impact.
  • Rebalancing: Market performance over the year may have caused your portfolio to drift from your target allocation. The end of the year is a good opportunity to rebalance, selling appreciated assets (especially in taxable accounts) to bring your allocation back in line with your goals.

4. Retirement Accounts: Contributions, Conversions, and Distributions

Maximizing the benefits of your retirement accounts requires careful year-end planning:

  • Max Out Contributions: Ensure you’ve made the maximum allowable contributions to your 401(k), IRA, or HSA for the year. If you’re 50 or older, take advantage of catch-up contributions. The limits for 2024 are $23,000 for 401(k) contributions with an additional $7,500 catch-up contribution.
  • Roth Conversions: Consider converting a portion of your traditional IRA to a Roth IRA. You’ll pay taxes on the amount converted now, but future withdrawals (including growth) will be tax-free. This strategy is particularly useful if you expect to be in a higher tax bracket later.
  • RMDs: If you’re over age 73, you must take RMDs from traditional IRAs, 401(k)s, and similar accounts. Ensure you calculate and withdraw the correct amount to avoid steep penalties. Keep in mind that RMDs from multiple IRAs can be aggregated, but this does not apply to inherited IRAs or most employer plans.

5. Business Owners: Optimizing Tax Strategies

Running a business introduces unique tax planning opportunities and challenges:

  • Qualified Business Income Deduction (QBI): If you have a pass-through entity, such as an LLC or S-corp, you may qualify for a 20% QBI deduction. Ensure you meet eligibility requirements and consider strategies to maximize this benefit.
  • Roth vs. Traditional Contributions: Business owners should evaluate whether making Roth or traditional retirement plan contributions aligns better with their current and expected future tax situation.
  • Accelerating or Deferring Expenses: To manage taxable income, you can defer or accelerate business expenses based on your expected income in future years.

6. Health Savings and Flexible Spending Accounts: Smart Healthcare Moves

Health-related accounts offer valuable tax advantages but come with year-end deadlines:

  • HSA Contributions: Max out contributions to your HSA if you’re covered by a high-deductible health plan. Contributions are tax-deductible, grow tax-free, and can be used tax-free for qualified medical expenses.
  • Flexible Spending Accounts (FSAs): Check your FSA balance. Some plans allow you to roll over a portion of unused funds, while others provide a grace period for using leftover money. Make sure you understand your employer’s rules to avoid losing funds.

7. Estate Planning and Family Considerations

Year-end is a great time to revisit your estate plan and ensure it reflects your current wishes:

  • Annual Gifting: The annual gift tax exclusion lets you gift up to $18,000 per person without triggering any tax. This can be a powerful way to transfer wealth to family members or loved ones.
  • 529 Plan Contributions: Consider contributing to 529 education savings plans. You can gift up to $90,000 per beneficiary with a five-year election, providing a valuable tax-advantaged way to save for education.
  • Review and Update Documents: Have you experienced changes in marital status, the birth of a child, or the passing of a loved one this year? Updating your estate plan ensures that your documents align with these changes and reflect your current wishes.

8. Preparing for New Laws and Life Changes

Finally, it’s important to stay informed about potential changes in tax law or other regulations that may impact your financial plan for 2025 and beyond. Working with a financial advisor can help you stay on top of relevant updates and ensure your plan is as effective as possible.

Closing Thoughts: Take Charge of Your Financial Future

With a little proactive planning, you can end 2024 on a high note, knowing you’ve made strategic moves to enhance your financial health. At Suttle Crossland, we’re here to guide you through this process and help you align your actions with your goals. Whether it’s tax strategies, investment rebalancing, retirement account optimization, or estate planning, our aim is to empower you for a financially secure and prosperous 2025.

Ready to plan together? Contact us to schedule a year-end review and start 2025 with confidence.

Address

Suttle Crossland Wealth Advisors, LLC
20715 North Pima Road, Ste. 108
Scottsdale, AZ 85255

(602) 834-3905 [email protected]

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