As we head toward the final months of 2023, how many of us are thinking about Thanksgiving, family gatherings and planning for the year ahead? Okay, now how many are thinking about year-end tax planning? While it may not be nearly as exciting as your upcoming holiday festivities, taking the time now to review your tax situation and plan for any life changes that have happened or will happen during 2023 (and their effects on your taxes) can have a significant impact on your financial well-being.

Why does year-end tax planning matter?

Year-end tax planning is about making strategic decisions that will minimize your tax liability and maximize your financial gains. By understanding your full current financial picture, you can take actions now to ensure that you’re not paying more than you need to in taxes. Here’s how…

1. Helps you to maximize your tax savings by identifying opportunities to reduce your taxable income, claim deductions and use tax credits.

2. Helps you avoid costly mistakes by making sure you’re in compliance with tax laws and regulations like underpayment of taxes and penalties.

3. Allows you to identify any tax law changes that might be beneficial to your situation.

4. Provides insights to help you plan for your future financial goals.

What life changes can affect my tax situation?

Tax law changes or fluctuations in your taxable income aren’t the only events that can affect the amount you’re required to pay in taxes. There are events that occur in your own life that can significantly impact your tax obligations. Here are 5 examples…

1. Getting married or divorced. You’ll likely need to update your filing status, assess the advantages of filing joint or separate returns and make sure that your deductions and credits are optimized for your new marital status.

2. Selling stocks. If you’ve sold stocks during the year, you’ll need to account for any capital gains (or losses) that were realized as a result of the sale. Understanding those tax implications now will allow you time to take action to minimize tax obligations.

3. Selling your home. Selling your primary residence can provide substantial tax benefits. With the capital gains exclusion, you can exclude up to $250,000 (single) or $500,000 (married couple) from your taxable income – as long as you meet the specific requirements and timeframes.

4. Changing your job. Switching employers or even getting a promotion with your current employer can lead to changes in your income, benefits and expenses. You’ll want to assess how those changes affect your tax situation.

5. Receiving an inheritance. Most of the money you receive as an inheritance is not taxed. However, if an IRA is part of your inheritance, you’ll likely be taxed on any distributions from that IRA. If you receive property, any gains realized as a result of the property increasing in value from the time it was transferred to you will generally be taxed.

Year-End Tax Planning Tips

It’s not too late to try and minimize your tax obligations for 2023. There are opportunities for every level of income, but it’s important to start planning now. Here are some tips:

1. Review your current financial situation. This includes your income, expenses and any investments made during the year.

2. Maximize your retirement contributions.

3. Consider making year-end donations to your favorite (and eligible) non-profit organizations to take advantage of possible deductions. Don’t forget the receipts!

4. Evaluate your investment portfolio. There may be opportunities to offset any gains realized from the sale of investments.

5. Contribute to your Health Savings Account (HSA). Not only can contributions to your HSA help cover your medical expenses, it can also provide tax benefits.

6. Consult a tax professional. The tax landscape is constantly changing and a tax pro can help you understand those changes and make any necessary adjustments to minimize your tax obligations.

Remember, the key to keeping more money in your pocket at tax time is to stay proactive and informed, especially when you’re navigating significant life changes.

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Contact us today to get started.