Remember to consult your tax professional before making significant tax-planning decisions.
1. Max Out Your Retirement Accounts, If Possible
As the year draws to a close, review your retirement contributions to see if you can save more before year-end. Contributions to traditional 401(k) plans may reduce your taxable income. IRA contribution deadlines differ from workplace plans, so consider your options and eligibility before making additional contributions.
2. Consider a Roth Conversion
A Roth conversion moves funds from a traditional IRA to a Roth IRA, generally creating taxable income in the year of conversion. If you expect to be in a lower tax bracket this year, a conversion may be worth considering. Review the potential tax impact before year-end to determine whether it fits your retirement strategy.
3. Defer Income, If Appropriate
If you expect to be in a lower tax bracket next year, consider whether certain income can be deferred until 2027. Depending on your circumstances, this may include delaying a year-end bonus or postponing billing for self-employed individuals. Cash-basis taxpayers should review the rules carefully before making changes to income timing.
4. Review Your FSA Balances and Deadlines
If you participate in a Flexible Spending Account (FSA), check your remaining balance before year-end. Some plans allow limited carryovers or a grace period to use unused funds, while others may require you to forfeit them. Review your employer’s plan rules and deadlines so you can use eligible funds before they expire.
5. Make Charitable Gifts or QCDs
Year-end charitable giving can support causes you care about while potentially providing tax benefits. If you itemize deductions, eligible charitable contributions may reduce taxable income. Individuals age 70½ or older may also consider a Qualified Charitable Distribution (QCD) from an IRA, which can satisfy eligible charitable goals without including the distribution in taxable income.
6. Take Your RMDs
If you are required to take a Required Minimum Distribution (RMD) from a retirement account, review your deadline before year-end. Missing an RMD may result in a significant excise tax. The rules vary by account type and individual circumstances, so confirm the amount due and arrange your distribution in time to meet the applicable deadline.
Please note: This newsletter is intended for general informational purposes and does not constitute individualized tax advice. Your specific tax situation may require additional considerations.