Year-end is the ideal time to speak with your financial advisor and CPA, especially if your financial situation has changed. Smart tax planning ensures compliance while minimizing your tax burden.
Here are key tax areas to discuss with your fiduciary financial advisor and CPA:
Did You Have a Change in Income?
Income changes require adjustments to estimated tax payments and withholdings. If you owe more than last year, you may need additional quarterly payments or risk underpayment penalties unless you're within the IRS "safe harbor."
Also discuss what this income change means for your emergency fund and whether your broader financial goals need adjustment.
Did You Have Any Large Stock Sales?
Large stock sales or taxable account rebalancing trigger tax obligations. Inherited accounts are initially tax-free, but subsequent sales are taxed.
Review taxable gains before year-end and consider harvesting losses to offset gains.
Did You Inherit Any Money This Year?
Initial bequests are typically tax-free, but subsequent sales are taxed. Beneficiary rules vary significantly for annuities, retirement plans, and IRAs.
Roth IRA inheritances typically require drawdown within ten years. Accounts inherited before 2020 may still use the stretch IRA approach.
Did You Buy, Sell, or Refinance a Home?
For married couples, home sale profits up to $500,000 are generally tax-free, but specific conditions apply. Verify your eligibility.
If you paid off a mortgage with deductible points, you may deduct the remaining balance this year. Refinancing can generate deductible point amortization.
Thinking About Making a Charitable Donation?
Discuss charitable donations with your CPA and financial advisor to maximize tax benefits and avoid penalties. Donate appreciated securities instead of cash when possible.
Consider transferring an RMD directly to a qualified charity to avoid taxes on the withdrawal and reduce taxable income. Direct transfers are available after age 70.5, though RMDs don't begin until age 72. The maximum annual transfer is $100,000 and does not qualify for a charitable deduction. Direct contributions to charity are typically more beneficial than claiming a deduction.
Did You Recently Get Married or Divorced?
Marriage increases tax rates for dual-earner couples. An unemployed spouse can fund an IRA if the other spouse has earned income.
For divorces, alimony is no longer deductible for the payor or taxable to the recipient. Divorce settlements must reflect this change. Review which party can claim dependents.
Are You the Parent of a College Student or Recent Grad?
The American Opportunity Tax Credit offers parents up to $2,500 per student for the first four years of university tuition.
Have You Recently Retired?
Discuss tax bracket management with your CPA and financial advisor. Strategies include maxing out pretax retirement accounts and converting pretax funds to after-tax funds at potentially lower rates.
Have this end-of-year conversation with your financial advisor before year-end to maximize opportunities and avoid pitfalls in your financial plan. Part of this discussion should include reviewing how to choose a financial planner your ultimate guide to ensure your advisor has the expertise and fiduciary commitment your family deserves. Comprehensive financial planning coordinates tax strategy with investment and estate planning.
