As the year draws to a close, it’s crucial to get your financial house in order. Proper year-end tax preparation can help you maximize deductions, minimize liabilities, and set yourself up for a successful new year. Here are some key strategies to consider:
Tax/Loss Harvesting
Tax-loss harvesting involves selling investments that have lost value to offset gains from other investments. This strategy can help reduce your taxable income. Additionally, you can use capital losses to offset up to $3,000 of ordinary income per year. Remember, ordinary income and capital gains are not the same. Any excess losses can be carried forward to offset ordinary income (up to $3,000) or capital gains in future years.
Re-evaluating Quarterly Estimates
If you make quarterly estimated tax payments, now is a good time to re-evaluate your income and expenses for the year. Adjusting your final quarterly payment can help avoid underpayment penalties and ensure you’re not overpaying.
Mutual Fund or ETF Distributions
Mutual funds and ETFs often distribute capital gains and dividends at the end of the year. Be aware of these distributions as they can impact your taxable income. Be mindful of large mutual fund or ETF purchases during the last quarter of the year as it may create greater exposure to capital gain or loss. Consider reaching out to your advisor to adequately capture gains and losses. An often overlooked fact is mutual fund lots can be selected and sold to capture short-term losses for offsetting realized capital
gains.
Required Minimum Distributions (RMDs)
If you are over the age of 73 (or 72 if you turned 72 before January 1, 2023), you must take required minimum distributions from your retirement accounts. Failing to take RMDs can result in hefty penalties, so ensure you meet the deadline.
Meeting with Your CPA
A year-end meeting with your CPA can provide valuable insights and help you identify additional tax-saving opportunities. Your CPA can assist with complex tax issues, ensure compliance, and help you plan for the upcoming year.
Business Owners: Deductible Purchases
If you’re a business owner, consider making any necessary purchases before the year ends. Items that will be used in 2025 but purchased in 2024 can qualify for bonus depreciation deductions, reducing your taxable income for the current year.
Business Owners: Family Members on Salary
Putting family members on the payroll can be a tax-efficient strategy. This can help reduce your business’s taxable income while providing income to family members, potentially at a lower tax rate. Ensure that compensation is reasonable and that family members are doing legitimate work for the business.
Year-end tax preparation is a vital part of financial planning. By taking these steps, you can optimize your tax situation and enter the new year with confidence. Don’t hesitate to reach out to a Nepsis wealth advisor or tax professional to achieve ultimate Clarity with your finances.
Advisory Services offered through Nepsis, Inc., an SEC Registered Investment Advisor.
Source: Conversation with Copilot, 10/24/2024
- Tax-loss harvesting | Capital gains and lower taxes | Fidelity
- Estimated taxes – Internal Revenue Service
- Mutual funds, ETFs, and capital gains distributions
- Required Minimum Distributions: What to Know | Charles Schwab
- Deductions: Section 179 & Bonus Depreciation | U.S. Bank
- Family employees – Internal Revenue Service