2023 EP1017 | Financial Updates | 4 Year End Tax Tips To Get On Track For 2024

Peter, good to see you. Today we are sharing four year-end tax tips to get on track for 2024. The end of the year is a great time to start thinking about your taxes for the upcoming year. So we are sharing four tax saving tips that everybody can do now to help you get on track for 2024. And the first is to consider maxing out your Roth IRA contributions or even a conversion, some are calling October, Rothtober. Yeah, and for good reason.

I mean, this is a great opportunity. And by the way, yes, it's only October here, but year-end is quickly approaching. So you need to hop on some of these that have hard deadlines to be done within the year, like Roth conversions. Now, there is a difference between a contribution and a conversion, several important differences actually. For new money being contributed, being put into tax qualified retirement accounts for the very first time, you actually can do that all the way up until you file your taxes or the tax filing deadline. So there's a little bit of extra time there for a new contribution, a deposit to an IRA or a Roth IRA. But for conversions, those must be done completed by December 31st. And so most of the financial institutions actually have a deadline well before that for having received any kind of request to make that Roth conversion. So good time as any right now to go ahead and get a jump on that and get a start on making any kind of conversion. And the conversion, by the way, does not have the income limitations nor the amount limitations.

You can do as much as you'd like, no matter how much you are earning, although you do want to carefully crunch the numbers and make sure that it is an advantageous financial move. And second, consider offsetting your gains by harvesting the losses. I can think of several losers I have in my portfolio right now, Peter. I don't know about winners though.

Well, that is unfortunate. We never love to see losers, but if you do have some gains, you can use the losses to offset the taxes on those gains. That's why it's called tax loss harvesting.

Basically, if you sell an investment in a non-qualified, meaning non-retirement account, just an after-tax investment account, if you do have losses, you can sell those off and you can deduct $3,000 in a given single year from losses regardless. But if you've got some positions inside of that account that have gained substantially, you can actually use far more, far greater losses to offset the taxes on those gains. So let's say we had one position that maybe had $20,000 or $30,000 in gains. And then across some other positions, we had $20,000 or $30,000 in losses. Well, we don't really want to stick with a stock or an equity position investment if it is not really performing that well. So maybe it's time to get out of those that have lost value. And we would love to harvest those gains from the winner and not pay taxes. If you do both corresponding in a single tax year, you can offset the tax on the gain and tax loss harvest so you don't owe taxes on that. That's a great strategy.

It is. Third, you say consider your tax filing status. This is something that you have found sometimes people just overlook.

Yeah, it's sort of easy to overlook. But if you are finding that you owe taxes when you file on a repeated basis, like year after year, you may want to go and look at the tax filing status that you have at your employer. In other words, that W-4 form that you fill out when you get newly hired.

A lot of times people do that once and then sort of forget all about it. But if you are finding that on an ongoing basis, you do end up owing in taxes, you can go back to that form. You can change the number of dependents or withholdings that you are claiming. And sometimes it is just a matter of changing the deduction withholdings for the dependents. Sometimes maybe there's a big commission check or bonuses that come in during the course of the year and you figure out that, wow, we didn't withhold nearly as much, although those checks often we feel like we're getting pretty dinged on them when we receive them and don't get nearly as much as we think we should. But then we end up owing taxes again at the end of the year. Well, you can go and you can make a deduction, an additional withholding of a specific amount per paycheck on that form. So if you find that, hey, we end up owing thirty six hundred dollars in taxes pretty regularly. Maybe you want to have an extra three hundred dollars withheld per paycheck or something along those lines. And then last, always good advice here, seek tax efficient investments.

Are there any specifics that you're thinking of here? Yeah, well, there are several, but any anytime we can be efficient with taxes, it is a good thing. So IRAs, Roth IRAs, those are big ones. 401Ks, Roth 401Ks, those are opportunities that a lot of people have. But too often overlooked, I think, are the ability for the HSA, the health savings account, which is one opportunity for truly tax free money. We can contribute, deduct that from our taxes. The growth on that is tax free. And if used for qualifying medical expenses, you can pull that money out and spend it on those health care expenses tax free.

So that's a great opportunity. 529 accounts, another great opportunity. And even better now that they have changed the rules on 529 to allow unused money to be converted to Roth IRAs in the beneficiaries name, if it does not get used for education. By the way, this can be a great wealth transfer strategy in and of itself to maybe put money in, especially like from a grandparent, maybe trying to control some of their estate and taxes on accounts. Gift money into a 529. And as long as it's been open for 15 years, up to $35,000 can then be rolled into a Roth IRA.

So even if you have used the dollars for educational expenses, maybe don't close the account quite yet. And then finally, QCDs, qualified charitable distribution. This is another opportunity that we have for truly tax free money. If you are charitably inclined and of RMD age, A make sure that you take care of your RMDs. That's another tax planning item certainly to do before the end of the year.

You don't want to overlook that. That's the required minimum distribution. That age is starting at 73, but they actually didn't change the age for being able to do the qualified charitable distribution, which is 70 and a half still, meaning that if you are 70 and a half, if you are charitably inclined, do not give to your charity, do not tithe, do not give that donation out of after tax cash, gift it out of your IRA because you were able to save and contribute and put away that money without paying taxes. It was tax deferred for the growth.

And now it is time to take that distribution. Well, that would be taxable if you took it. But if you gift it to your charity or or church or organization, they receive it tax free. It comes out of your IRA as a donation. So that is tax free.

And if you are 73 or above and have those RMDs, it also satisfies that RMD requirement or counts against it. So it is a really a win, win, win all the way around there. So things to do before the end of the year. And now's the time to get planning on a marriage. Great strategies, Peter.

Some more complicated than others. If somebody would like your help implementing any of these strategies, what's the best way to reach you? Give us a call in the office.

Nine one nine three hundred five eight eight six nine one nine three zero zero five eight eight six. You can also skip the phone call. Always available online. Roshan planning dot com. Rich on planning dot com is what it looks like. Roshan planning dot com.

You can email me, Peter, at Roshan planning dot com. All right, Peter, thanks so much for your help today. Always a pleasure.

And thank you. This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment tax or legal advice from an independent professional advisor. Any investment and or investment strategies mentioned involve risk, including the possible loss of principal advisory services offered through Brooks Own Capital Management, a registered investment advisor. Fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management, while insurance products pay a commission, which may result in a conflict of interest regarding compensation.