October typically marks the onset of the Fall season. It is the time when the leaves on the trees start to transform into a brilliant display of reds and golds, the air becomes chillier in the evening, and we begin planning our Halloween costumes. Fall is also an opportunity to focus on some important financial tasks. Those of us who receive a lot of K1’s or just put off filing their federal taxes for the previous year until the very last minute are faced with that unwelcome task. It is also the time when you should focus on year-end tax planning for the upcoming year. Why should you start thinking about tax planning now? Well, there are several reason Fall is the best time to lay the groundwork to ensure you are prepared to start the New Year in great financial shape.
Financial Clarity: By the time you get to the final quarter of the year you have a pretty good understanding of your earnings, major expenses and any significant financial changes that might take place in the coming year. This clarity allows you to make any adjustments to your estimates for deductions and benefits.
Maximizing deductions: Fall provides the opportunity to review potential deductions and also make decisions about any potential charitable donations, make additional investments in tax-beneficial accounts (like 401(k)s or IRAs) or consider other strategic financial decisions that could potentially maximize your deductions.
Anticipating changes: The legislative bodies of government often discuss potential tax changes towards year end. Being aware of any possible changes and making proactive decisions could save you from potential pitfalls later.
Avoiding the last-minute rush: Getting a head start on tax planning allows for a more relaxed approach, avoiding the stress and mistakes that could come with late-minute decisions.
Here’s a basic checklist for some Fall financial planning:
Review your income: Take a look at how much you’ve earned during the year so far and anticipate any further income you might receive in the remaining months of the year. If you are near the point of moving into a higher tax bracket, you may possibly benefit from postponing the receipt of some additional income until next year.
Assess major financial changes: Did you buy a new home? Start of new job, or launch a new business? Maybe you welcomed a new child into your family. All of these events can have significant tax implications.
Double check your retirement contributions: Make sure you are maximizing contributions to retirement accounts like 401(k)s and IRAs. The maximum contribution to an IRA in 2024 is $7,000 per year, or $8,000 if you are 50 or older. This limit applies to the total amount contributed to all IRAs, including both traditional and Roth IRAs.  The amount you can contribute to a Roth IRA is also dependent on your modified adjusted gross income (MAGI). In 2024, you must have a MAGI of less than $146,000 as a single filer, or less than $230,000 as a joint filer, to contribute the full amount.
Explore charitable giving: Consider making some charitable contributions. Not only are you giving back to those less fortunate, but you may also benefit from some tax deductions.
Consider tax loss harvesting: Tax-loss harvesting is a tax strategy that involves selling unprofitable investments at a loss in order to offset or reduce capital gains taxes incurred through the sale of other investments for a profit. If you have realized capital gains from the sale of profitable investments during the year, you may be able to offset some (or maybe even all) the tax on the capital gain by selling some unprofitable investments. Basically you “harvest” investments at a loss to offset or lower taxes you have to pay on gains in other investments. This strategy only applies to investments held in taxable accounts. It doesn’t apply to investments in tax-sheltered accounts like IRAs. There are other rules and restrictions as well and its best if you consult a tax professional before employing this strategy.
Rebalance your investment portfolio: Investing in different asset classes is an important strategy in personal finance. You should have a mix of asset classes in your portfolio that matches your personal risk tolerance level and long-term investment goals. Over time however the mix of assets can become out of balance as some assets may appreciate (or depreciate) more than others. This can make your portfolio drift away from its original or desired allocation and potentially expose you to more risk than you intended. Additionally, if your investment strategy, long term goals or risk tolerance has changed, you will also need to rebalance your portfolio to match those new objectives. This can be a complicated process and is another reason it might be prudent to consult a financial professional for assistance.
Fall, with its beauty and festive spirit is a reminder that the year is drawing to a close. It’s a season of reflection and gratitude, making it an ideal time to consider our financial well-being. As you watch the leaves change color and float to the ground, remember that taking the time to do a little advance planning now can lead to a more prosperous and stress-free new year.
(If you have questions or desire to enquire about our personalized financial services, you can email me at rbeeman@gjwadvisors.com)
