With just days remaining, financial advisors are urging taxpayers to take advantage of year-end planning opportunities that could lower their tax burden.
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With just days remaining before the Dec. 31 deadline, financial advisors are urging taxpayers to take advantage of year-end planning opportunities that could significantly reduce their tax burden.
Mark Henry, CEO of Alloy Wealth Management, outlined several strategies individuals can implement before the calendar flips to 2025.
Roth conversions must be completed by Dec. 31
One of the most time-sensitive opportunities involves Roth conversions, which allow individuals to transfer funds from traditional 401(k) or IRA accounts into Roth accounts.
“Everyone can do a Roth conversion,” Henry said. “Doesn’t mean it’s the right thing to do, but you should at least consider it.”
Unlike regular contributions, which can be made until the tax filing deadline, conversions must be completed by Dec. 31 to count for the current tax year.
Charitable giving strategies for seniors
For individuals over age 70.5, Henry recommends considering qualified charitable distributions from retirement accounts. This strategy allows donations to come directly from an IRA or 401(k) without appearing on the donor’s tax return.
“If you’re going to make a donation before the end of the year to a charity or a church or something, think about taking that from your IRA or 401(k),” Henry said. “Those are things that could be done this year to save money on your taxes for next year.”
Itemized vs. standard deduction
Henry emphasized the importance of evaluating whether to take the standard deduction or itemize. With the standard deduction having increased in recent years, some taxpayers may benefit from one approach over the other depending on their individual circumstances.
Changes in household composition, such as adult children no longer qualifying as dependents, can impact which strategy makes more sense.
Planning for 2025
Rather than scrambling at year-end, Henry advocates for monthly tax planning throughout the year. The goal is to avoid both large refunds and significant tax bills.
“You don’t want to let the government use your money all year, but you also don’t want to owe a bunch or penalties,” he said.
Henry also noted that while markets are experiencing what he called a “Santa Claus bump,” investors should prepare for the possibility of a January slump by reviewing their portfolios now.
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