Year-End Financial Planning Tips for Individuals: What to Consider Before the New Year
As the end of the year approaches, it’s a great time to take stock of your financial situation and make moves that can help minimize your tax burden, maximize savings, and position yourself for a strong start in the new year. Here’s a list of key areas to focus on as you wrap up your year-end financial planning.
1. Maximize Retirement Contributions
•If you haven’t maxed out contributions to your retirement accounts, now is the time to do so. Contributions to a Traditional IRA or employer-sponsored 401(k) may reduce your taxable income.
•For 2024, the 401(k) contribution limit is $22,500 for those under 50, with an additional $7,500 in catch-up contributions allowed for those 50 and older.
2. Harvest Tax Losses
•Consider selling investments that have underperformed to offset capital gains from profitable investments. This can help lower your taxable income.
•Remember to adhere to the “wash-sale rule,” which disallows claiming a loss if you repurchase the same or a substantially identical asset within 30 days.
3. Consider Charitable Contributions
•Donations made to qualifying charitable organizations may be deductible on your taxes if you itemize deductions.
•Keep proper documentation for your contributions, such as receipts and acknowledgment letters for gifts of $250 or more
4. Review Your Withholdings and Estimated Tax Payments
•Take a moment to evaluate whether you’ve had enough taxes withheld or made sufficient estimated payments throughout the year. Adjustments may be necessary to avoid penalties or a large tax bill come April.
•Use the IRS’s Tax Withholding Estimator or consult with a tax professional for guidance.
5. Plan for Medical Expenses
•If you have high medical expenses, check to see if they exceed the 7.5% threshold of your adjusted gross income (AGI) for potential itemized deductions.
•Consider scheduling any necessary procedures or medical appointments before the year ends to take advantage of these deductions.
6. Take Advantage of Flexible Spending Accounts (FSAs)
•If you have a Flexible Spending Account, remember that any unused funds may be forfeited at year-end, depending on your employer’s policy.
•Consider using these funds for qualified expenses, such as medical costs or dependent care.
7. Contribute to a Health Savings Account (HSA)
•If you are enrolled in a High Deductible Health Plan (HDHP), contributing to an HSA can help reduce your taxable income and save for future medical expenses.
•Contributions for 2024 are capped at $3,850 for individuals and $7,750 for families, with a $1,000 catch-up contribution available for those 55 or older.
8. Review Your Estate Plan
•The end of the year is an excellent opportunity to review and update your estate plan, including your will, trusts, and beneficiary designations.
•Ensure that your plans reflect any major life changes, such as births, deaths, marriages, or divorces.
9. Gifting to Family Members
•Consider making gifts to loved ones if you are concerned about estate taxes. The annual gift exclusion for 2024 is $17,000 per recipient, meaning you can give up to this amount without incurring gift tax consequences.
10. Evaluate Your Budget and Financial Goals
•Reflect on your 2024 spending and savings goals. Did you meet them? Take some time to set new financial goals for 2025 and make a plan for achieving them.
Wrapping Up the Year Strong
By addressing these areas, you can enter the new year on a stronger financial footing, prepared to tackle whatever comes your way. If you have any questions or need assistance with year-end tax planning or other financial concerns, don’t hesitate to reach out.
Wishing you a successful finish to this year and a bright start to the next!