As 2024 draws to a close, now is the perfect time to assess your financial situation and take advantage of year-end planning opportunities. Here are 5 Year-End strategies to reduce your tax liability, increase your savings and set yourself up for financial success!

1.) Avoid Under-Withholding Penalties

To avoid an under-withholding penalty, ensure you make any necessary fourth-quarter tax payments by January 15, 2025. Corporate professionals, particularly those who earn income through bonuses or equity compensation, often face under-withholding penalties. This is because such income is typically withheld at a flat 22% through payroll, which is likely lower than your actual tax rate.

Actions You Can Take:

• Project Your Withholding Requirement: Project your total tax withholding for 2024. If it exceeds 110% of your 2023 tax bill OR 90% of your projected 2024 tax bill, you likely don't need to make a Q4 payment.

• Increase Withholding: If you receive equity compensation, consider increasing your withholding rate. Walmart and Sam’s Club employees can adjust the withholding rate on RSUs and PSUs through Fidelity.

2.) Tax Loss Harvesting

Tax-loss harvesting allows you to offset capital gains by selling investments at a loss. This strategy can be an effective way to defer taxes and allow your investments to grow without interruption.

Actions You Can Take:

• Identify Losses: Review your taxable investment accounts for positions and tax lots with unrealized losses.

• Sell and Reinvest: Sell these losing positions, then reinvest the proceeds in a similar investment for 31 days. After 31 days, you can repurchase the original investment without triggering a “wash sale” — allowing you to maintain your portfolio's long-term strategy while realizing the tax benefit.

  
  

3.) Gifting Highly Appreciated Stock

For those considering charitable donations, gifting highly appreciated stocks is often a more tax-efficient option than giving cash. By donating stocks that have grown significantly in value, you can avoid paying capital gains taxes, and the charity receives the full value of the asset. This is a win-win for both you and the recipient organization.

Actions You Can Take:

• Review Your Portfolio: Identify stocks with substantial gains that you have held for at least one year.

• Donate Stock: Donate these appreciated shares directly to charity. Not only will you avoid capital gains taxes, but you can also claim a charitable deduction for the full market value of the gift.

  
  

4.) Backdoor Roth Conversion

If your income exceeds the eligibility limits for Roth IRA contributions, a backdoor Roth conversion may be an effective strategy. This allows you to fund a Roth IRA with after-tax dollars, offering the benefit of tax-free growth and withdrawals in retirement.

Actions You Can Take:

• Make a Non-Deductible Contribution to an IRA: Contribute to a traditional IRA, but do not claim a deduction.

• Convert to Roth IRA: Immediately convert the funds from the traditional IRA to a Roth IRA.

• (Important) Consider the Pro-Rata Rule: If you have pre-tax funds in any IRAs, be aware that the IRS requires a proportional conversion of both pre-tax and after-tax funds, not just the after-tax contributions.

5.) Take Advantage of Deferred Compensation Plans

For certain corporate professionals, participating in an employer sponsored Deferred Compensation Plan can reduce your lifetime tax bill. These plans allow you to defer income to a later year when you may be in a lower tax bracket, potentially leading to significant long-term tax savings. Additionally, the funds in these plans grow tax deferred.

Actions You Can Take:

• Review Your Plan: Many Deferred Compensation Plans, such as the Walmart DCMP, require participants to make elections for the upcoming year by the end of this year.

• Understand Plan Nuances: Each employer's Plan has specific rules and matching options. Take the time to review articles and strategies focused on your employer's plan for maximum benefit.

Wrap-Up

By taking advantage of these strategies before year-end, you can reduce your tax burden, increase your savings and set yourself up for a successful financial future. If you're unsure where to start, feel free to schedule a quick call.

Taurus Financial Planning is a Fee-Only Wealth Management firm based in Bentonville, AR. The firm offers comprehensive financial planning, tax planning and investment management to corporate executives across the country.

Taurus Financial Planning is a Registered Investment Advisor with the State of Arkansas. This information is provided as a guide to assist you in your financial planning. The specific examples are provided for illustration purposes only and are not representative of specific investments or guarantees of future returns. Please consult with a professional for specific questions regarding your particular situation. If there is any error or inconsistency between this document and the official company plan documents, your company plan documents will govern.

This publication is for informational purposes only and is not intended as tax, accounting or legal advice or as an offer or solicitation of an offer to buy or sell or as an endorsement of any company security fund or other securities or non securities offering. This publication should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made by the Author, in the future, will be profitable or equal the performance noted in this publication.