End of Year Tax Planning Moves For High Income W2 Earners
As we approach the end of the year, it's time to start making strategic tax & financial planning moves.
You might be wondering, “What strategies should I consider?”
I'll walk you through 20 of the most impactful end of year planning moves you can make.
Let’s Dive Right In:
Max Out Your 401(k), 403(b), 457, etc.
Contribute the maximum amount to your retirement accounts to reduce taxable income and increase your investment rate.
Max Out Your Backdoor Roth IRA
You have until the tax filing deadline to contribute to your Roth IRA or backdoor Roth IRA. Take advantage of tax-free growth and withdrawals in retirement.
Max Out Your HSA
Contribute to a Health Savings Account (HSA) for triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Invest the dollars and don;' use if possible.
Max Out Your 529 Plan to the State Tax Benefit
Contribute to a 529 plan to take advantage of state tax benefits and save for future education expenses.
Use All of Your Dependent Care FSA Funds
Utilize your Dependent Care Flexible Spending Account (FSA) funds to cover eligible expenses and reduce your taxable income.
Use FSA Funds as Most are Use-It-or-Lose-It
Spend your FSA funds before the year ends to avoid losing them and maximize your tax savings.
Tax Loss Harvesting
Sell losing investments to offset capital gains and reduce your taxable income. The end of the year is a great time to accelerate this.
Tax Gain Harvesting
Sell investments with a gain to take advantage of lower tax brackets, potentially paying less in taxes. Or to use losses that have been harvested and raise your basis.
Consider Electing into Your ESPP for Next Year
Evaluate your Employee Stock Purchase Plan (ESPP) options for the upcoming year to maximize potential benefits.
Sell ESPP Funds That Became Yours in December
If you want to lock in the discount, consider selling ESPP funds that became yours in December.
Roth Conversions
Convert traditional IRA funds to a Roth IRA to maximize lower tax brackets or the current bracket you are in, benefiting from tax-free growth.
Exercise ISOs Up to the AMT Threshold
Exercise Incentive Stock Options (ISOs) up to the Alternative Minimum Tax (AMT) threshold, or even beyond if it aligns with your financial plan.
Exercise NSOs if It Makes Sense
Evaluate and exercise Non-Qualified Stock Options (NSOs) if it aligns with your financial strategy. But make sure you understand where your income falls tax bracket wise.
Review Your Paycheck for Tax Withholding
Ensure you've withheld enough from your paycheck to cover your tax liability, avoiding surprises during tax season.
Do Mega Backdoor Roth if Your Company Allows It
If your company permits, and you have extra funds, consider a Mega Backdoor Roth 401(k) to maximize your retirement savings.
Donate Cash to Charity
Make charitable donations to reduce taxable income. Consider bunching donations or using a donor-advised fund for greater tax benefits.
Donate Highly Appreciated Securities
Donate appreciated securities before selling to avoid capital gains tax and receive a charitable deduction.
Cost Segregation Study on Your Property
Conduct a cost segregation study and take advantage of bonus depreciation (currently at 80%) to reduce taxable income.
Invest in a Qualified Opportunity Zone
Defer large capital gains by investing in a Qualified Opportunity Zone, potentially benefiting from tax-free growth.
Prepay Property Taxes
Prepay property taxes to maximize the $10,000 deduction limit (if married), reducing taxable income.
All of these strategies can be incredibly impactful.
Review which ones apply to you and take action sooner than later.
Your future self will thank you!