The Tax Saving Moves High Earners Make Before Year End

In this video, David Hollander, CEO and Founder of Liberty Group, discusses essential tax-saving strategies high earners may want to consider before year-end. If you want to learn how to potentially reduce your tax burden, this video is a must-watch. From maximizing retirement contributions and charitable donations to utilizing HSAs and adjusting investment portfolios, David provides insights to help you optimize your tax strategy before the year ends.

As the year-end approaches, are you confident you’re making the most of your tax-saving opportunities? For high earners, the right moves now can make a significant impact on your financial health. Today, we’re diving into the essential tax strategies you need to know before the clock runs out.

One of the most effective ways to reduce your tax burden is by maximizing your contributions to retirement accounts. By contributing the maximum allowable amount to accounts like a 401(k) or an IRA, you can significantly lower your taxable income.

For example, in 2024, the contribution limit for a 401(k) is $23,000 if you’re under 50, and if you’re 50 or older, you can make additional catch-up contributions, raising the limit to $30,000. These contributions not only help you save for the future but also provide immediate tax benefits.

Similarly, for IRAs, the contribution limit is $7,000 if you’re under 50, and $8,000 if you’re 50 or older. These contributions can be tax-deductible, depending on your income and participation in other retirement plans.

Remember, it’s important to understand which retirement accounts offer the best tax benefits for your situation. Consulting with a financial professional can help you determine the right accounts and contribution levels to maximize your tax savings.

Making charitable donations is not only a great way to give back to your community but also offers significant tax benefits. Donations to qualified charities can be deducted from your taxable income, potentially reducing your overall tax burden.

But did you know that there are strategies to help enhance the tax efficiency of your charitable giving? For instance, donating appreciated assets, such as stocks or mutual funds, instead of cash, can be highly beneficial. By donating these assets, you can avoid paying capital gains tax on the appreciation and still claim the full market value of the asset as a charitable deduction.

It’s crucial to keep detailed records and receipts of all your charitable contributions to substantiate your deductions. This includes obtaining written acknowledgment from the charity for any donation of $250 or more and maintaining records of smaller donations as well.

Maximizing the tax efficiency of your charitable giving can be complex, but a financial professional can provide invaluable guidance in this area. They can help you develop a strategy that aligns with your financial goals.

Health Savings Accounts, or HSAs, offer exceptional tax benefits that can potentially enhance your financial planning. By contributing to an HSA, you gain access to a triple tax advantage: Your contributions are tax-deductible, the account grows tax-free, and withdrawals for qualified medical expenses are also tax-free.

For 2024, the contribution limits for HSAs are $3,850 for individuals and $7,750 for families. If you’re 55 or older, you can contribute an additional $1,000 as a catch-up contribution. This possibility for tax-free growth over time makes HSAs a powerful tool for covering future healthcare costs.

It’s important to keep meticulous records of your contributions and medical expenses so that you can fully benefit from the tax advantages. Working with a financial professional can help you find the best ways to use your HSA within your overall financial plan.

Regularly reviewing and adjusting your investment portfolio is crucial for maintaining tax efficiency and achieving your financial goals. As the year-end approaches, it’s an ideal time to assess your investments and make necessary adjustments.

One effective strategy is tax-loss harvesting, which involves selling investments that have lost value to offset gains from other investments. This can help reduce your taxable income and potentially lower your tax bill.

Balancing your portfolio to align with your year-end financial goals is also essential. This might involve rebalancing your asset allocation, considering changes in your risk tolerance, or preparing for any anticipated financial needs in the coming year.

Utilizing tax-deferred accounts is a strategic way to manage your finances and plan for future expenses, such as education or retirement. These accounts allow you to defer taxes on contributions and earnings, potentially providing significant tax benefits over time.

For example, 529 plans are designed for education savings and offer tax-free growth and tax-free withdrawals when used for qualified education expenses. Contribution limits vary by state, but they often allow substantial contributions, making them an excellent tool for long-term education planning.

Deferred compensation plans are another valuable option, especially for high earners. These plans allow you to defer a portion of your income, reducing your taxable income now and potentially lowering your tax bracket. Contributions and earnings grow tax-deferred until you withdraw the funds, typically in retirement when you might be in a lower tax bracket.

Choosing the right tax-deferred accounts to fit your financial plan can seem overwhelming at first, but a financial professional can help you make informed decisions.

As the year comes to a close, conducting a year-end review with your financial professional is essential to make sure your tax strategy is optimized. This review allows you to make necessary adjustments to your income, deductions, and credits, potentially minimizing your tax liability.

By evaluating your income for the year, you can explore opportunities to defer income or accelerate deductions, depending on your financial situation. For instance, if you expect your income to be higher next year, it might be beneficial to accelerate deductions into the current year to offset your taxable income.

Additionally, staying informed about upcoming changes in tax laws is important. Tax legislation can significantly impact your financial planning, and understanding these changes can help you adjust your strategies accordingly.

Proper year-end tax planning requires a thorough understanding of your financial picture and the ability to anticipate future changes. A financial professional can offer personalized advice and make sure you get the most out of your year-end tax planning efforts.

Before we wrap up, let’s recap the key takeaways from today’s discussion on tax-saving moves for big earners before year-end:

• Maximize Retirement Contributions: Take full advantage of your 401(k) and IRA contribution limits to reduce your taxable income and save for the future.
• Make Charitable Contributions: Enhance the tax efficiency of your donations by considering strategies like donating appreciated assets and keeping detailed records.
• Utilize Health Savings Accounts (HSAs): Benefit from the triple tax advantage by contributing to an HSA and using it for qualified medical expenses.
• Review and Adjust Investment Portfolios: Conduct a year-end review to implement strategies like tax-loss harvesting and make sure your investments are tax-efficient.
• Leverage Tax-Deferred Accounts: Utilize accounts such as 529 plans and deferred compensation plans to defer taxes and plan for future expenses.
• Engage in Year-End Tax Planning: Conduct a thorough year-end review with your financial advisor to adjust income, deductions, and credits, and plan for upcoming tax law changes.

Remember, working with a financial professional can help you make the most of these strategies and optimize your tax savings.