5 Tax Questions to Ask Your Financial Planner Before the Year Ends

As the year draws to a close, now is the time to revisit your financial strategies, especially your tax planning. A proactive approach can help minimize your tax liability and set you up for a strong financial future. To make the most of your year-end financial planning, consider asking your financial planner these five crucial tax questions:

1. Are There Opportunities to Maximize My Tax-Deferred Accounts?

Tax-deferred accounts like 401(k)s, IRAs, and HSAs offer significant tax advantages. Before the year ends, check:

• Contribution Limits: Ensure you've contributed the maximum allowable amount to your retirement accounts. For 2024, the limit is $23,000 for 401(k) plans, with an additional $7,500 catch-up contribution if you’re 50 or older. It goes up to $23,500 in 2025. IRAs have a limit of $7,000 with a $1,000 catch-up, with no change for 2025.

• HSA Benefits: Contributions to an HSA can be tax-deductible and grow tax-free. The 2024 limit for individuals is $4,150 and $8,300 for families, with a $1,000 catch-up for those 55 or older. It goes up to $4,300 for individuals and $8,550 for families in 2025.

2. Should I Make Any Strategic Tax-Loss Harvesting Moves?

If your investment portfolio includes assets that have declined in value, consider tax-loss harvesting:

• Offset Gains: Selling underperforming assets allows you to offset capital gains.

• Carryforward Losses: Unused losses can offset up to $3,000 of ordinary income per year and carry forward to future years.

  
  

Your financial planner can help you identify suitable assets to sell and avoid wash-sale rules, which prohibit buying the same or substantially identical security within 30 days.

3. Are There Tax Implications for Gifting This Year?

The holiday season often inspires generosity, and gifting can also play a role in tax planning:

• Annual Gift Exclusion: For 2024, you can gift up to $18,000 per individual without incurring gift taxes. It goes up to $19,000 in 2025.

• Lifetime Exemption: Larger gifts count toward your $13,610,000 million lifetime estate and gift tax exemption in 2024, which goes up to $13,990,000 in 2025.

  
  

Consider working with your planner to ensure gifts align with your estate planning goals while maximizing tax benefits.

4. Should I Consider a Roth Conversion This Year?

Converting a traditional IRA to a Roth IRA can be a smart tax move, especially if you expect your tax rate to rise in the future:

• Current vs. Future Tax Rates: A Roth conversion requires paying taxes on converted amounts now, but future withdrawals (and growth) will be tax-free.

• Year-End Timing: Discuss whether this year’s tax bracket leaves room for a partial conversion without pushing you into a higher tax bracket.

  
  

Roth conversions can be complex, so consulting with your financial planner who can help run a tax calculation is essential.

5. What Charitable Contributions Should I Consider Before Year-End?

Charitable giving not only supports causes you care about but also offers tax benefits:

• Itemized Deductions: Donating to qualified charities can reduce your taxable income if you itemize your deductions. Even if you take the standard deduction, many states, including Colorado, allow you to take a deduction at the state level.

• Qualified Charitable Distributions (QCDs): If you’re 70½ or older, consider making donation from your IRA to make a QCD of up to $100,000 annually, which may reduce your required minimum distribution (RMD) that’s counted as ordinary income.

  
  

Ensure you obtain proper documentation for any donations to maximize your deduction potential.

By asking these tax-focused questions, you can take control of your finances, reduce your tax burden, and position yourself for a prosperous new year. Working closely with your financial planner ensures that your strategies are tailored to your unique goals and circumstances.

For additional guidance, consult a qualified tax professional or explore the IRS website for up-to-date resources and tools.

For more tips like these, download my free ebook series that covers debt management, growing your income to save more, investing wisely and retirement planning. To learn what it's like to work with a financial advisor, you can book a free call with Life Story Financial.