CCPA: Six Key Reasons to Consider a Year-End Tax Planning Session
Year-End Tax Planning: Make the Most of Your Financial Strategy
When we engage with new tax clients at Harmony, the number one request is almost always the desire to have more active input from our team on helping to optimize tax outcomes for a year. That makes this the perfect time to remind clients that we’re here to work with you, on demand, to ensure your finances are aligned with your goals. Whether it’s changes in your personal life, investments, or career, scheduling a proactive year-end tax planning session now can help maximize deductions, avoid surprises come April, and set you up for financial success in 2025.
To help you decide if you need to put in the extra effort during the holiday season, here are six key taxable income and life events that may warrant a year-end tax planning session:
1. Significant Changes in Income
If you’ve experienced a big shift in your earnings this year, either due to a promotion, change in job, or new business ventures, a tax planning session is a great idea. A change in income can affect your tax bracket, deductions, and eligibility for certain credits. We can help you optimize your tax strategy to make the most of your income while reducing your liability where possible.
2. Investment Gains or Losses
With market fluctuations, many of our clients have capital gains or losses to consider. If you sold stocks, real estate, or other investments, we can guide you on managing capital gains taxes, as well as leveraging any losses. Harvesting losses (we’re looking at you, Boeing!), for example, can help offset gains (hello, Nvidia shareholders!) and reduce your tax burden. It’s a powerful tax strategy, especially if you’re looking to rebalance your portfolio or increase liquidity.
CPA Tip: If you’re sitting on any carryforward capital losses, this may be an opportune time (after a year with a nearly 30% increase in the S&P 500) to recognize some capital gains that could be sheltered from taxation.
3. Marriage, Divorce, or Family Changes
If you’ve experienced a life event like getting married, divorced, having a child, or adopting, there may be implications for your tax situation. Marriage can change your filing status and potentially affect your tax bracket. Additionally, welcoming a new child can bring added tax benefits, such as the child tax credit. Family changes often come with new financial planning considerations, and our team can help ensure you’re making the most of all eligible benefits.
4. Buying, Selling, or Improving Real Estate
Real estate transactions often have a significant impact on tax outcomes, and looping your Harmony CPA into the picture now (we always recommend working with us to analyze a transaction *before* you make it) can allow us to help you optimize your tax outcomes. If you’ve bought a primary residence or investment property, there may be deductions available for mortgage interest and property taxes. Selling property, on the other hand, can result in capital gains taxes. A tax planning session can help you assess your options and explore strategies like Section 1031 exchanges for investment properties, which can defer capital gains taxes.
CPA Tip: If you’re considering any improvements to your properties that would qualify for current energy efficiency tax credits, you may want to pull the trigger in 2024 - we don’t know what next year’s major tax overhaul will include, but observers indicate that green energy tax credits implemented under the Infrastructure Revitalization Act will be targeted for repeal as potential pay-fors as Congress negotiates a new tax law at the end of 2025.
5. Tax Advantaged Retirement and HSA Contributions and Withdrawals
If you’re contributing to retirement accounts or, conversely, have started taking distributions, there are tax implications to consider. Contributions to 401(k) or IRA accounts may offer tax deductions, and year-end is a great time to ensure you’re maximizing these benefits. For those taking withdrawals, particularly if they’re required minimum distributions (RMDs), proper planning can help manage your taxable income. Same thing applies to accounts like Health Savings Accounts (HSAs) with annual contribution limits - maximizing contributions to accounts like these can help reduce income taxed at your highest marginal tax rates.
6. Passive Investments that Failed
More than a few of our clients have made passive investments that just didn’t pan out. That investment in a local restaurant that just keeps inching along but will never pay out? That friend’s software company that never built a killer app? Few of us bat 1.000. There’s a silver lining to every bad investment, however: if passthrough losses from those passive investments have been suspended, this might be the time to throw in the towel and get rid of the investment, freeing up those losses to be used to offset other income (and get a ‘return on investment’ via tax savings).
Why Schedule a Session Now?
At Harmony Group, we realize that one size doesn’t fit all - not everyone needs a year end tax planning session, so don’t worry if it doesn’t sound like you have any major tax changes this year. For those who do, however, that’s exactly what Harmony is here for. A proper planning session can be a vital tool in managing your wealth and ensuring long term financial stability. Thoughtful, proactive planning can allow us to help you take full advantage of deductions, credits, and other strategies while aligning your plan for the new year. If you expect any major changes for 2024, please feel encouraged to contact us in the next few weeks to schedule a year end tax planning session prior to year end.
Warm regards,
The Harmony Group Tax Team