As the end of the year approaches, it’s an ideal time to take a step back and review your financial and tax strategies. Being proactive can be one of the most important things you do this year with your finances! Making certain moves now can set you up for a healthier financial future and potentially reduce your tax liability. Here are the top financial and tax moves I talk with clients about before the calendar year turns.

1. Maximize Retirement Contributions

One of the most effective ways to reduce taxable income is by contributing to tax-advantaged retirement accounts:

• 401(k) or 403(b) Plans: Check if you can increase your contributions to these employer-sponsored retirement accounts. For 2023, the contribution limit is $22,500, or $30,000 if you’re 50 or older due to catch-up contributions.

• Individual Retirement Accounts (IRAs): You can contribute up to $6,500 to a traditional or Roth IRA ($7,500 if you’re 50 or older). Note that contributions to a traditional IRA may be tax-deductible.

2. Review Your Investment Portfolio

Year-end is a great time to reassess your investment portfolio:

• Harvest Capital Losses: Selling losing investments to offset gains from winners can reduce your taxable income. This strategy, known as tax-loss harvesting, helps minimize your tax liability.

• Rebalance Your Portfolio: Ensure your asset allocation is in line with your risk tolerance and long-term goals. This might involve selling some assets and buying others to maintain your desired investment mix.

3. Consider Charitable Contributions

Donations to qualified charities can provide you with a tax deduction if you itemize your deductions:

• Cash Donations: Direct gifts to charities can be deducted up to 60% of your adjusted gross income (AGI).

• Non-Cash Donations: Donating goods or appreciated assets like stocks can also yield tax benefits.

• Donor-Advised Funds: These funds allow you to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund over time.

4. Plan for Health Savings

If you have a high-deductible health plan (HDHP), consider contributing to a Health Savings Account (HSA):

• Contributions: For 2023, the contribution limits are $3,850 for individuals and $7,750 for families, with an extra $1,000 catch-up contribution allowed for those aged 55 and older.

• Triple Tax Benefit: HSAs offer pre-tax contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.

5. Review Flexible Spending Accounts (FSAs)

If you have a Flexible Spending Account (FSA) for medical or dependent care expenses, be aware of the “use it or lose it” rule:

• Spend Remaining Funds: Check your balance and plan to use any remaining funds before the deadline. Some employers allow a grace period or a $610 carryover to the next year.

6. Evaluate Your Tax Withholding and Estimated Payments

Ensure you’re withholding the correct amount of tax from your paycheck or making accurate estimated tax payments:

• Adjust Withholding: Use the IRS Withholding Calculator to see if you should file a new Form W-4 with your employer.

• Estimated Tax Payments: Make any necessary adjustments to avoid underpayment penalties.

7. Review Your Estate Plan

Year-end is also a good time to review and update your estate plan:

• Wills and Trusts: Ensure your documents are up to date and reflect your current wishes.

• Beneficiary Designations: Check that your beneficiaries on retirement accounts, life insurance policies, and other assets are correct.

8. Assess Your Insurance Coverage

Finally, review your insurance policies to ensure you have adequate coverage:

• Health Insurance: With open enrollment occurring around year-end, it’s an opportunity to choose the best plan for your needs.

• Home and Auto Insurance: Confirm that your coverage is sufficient and shop around for better rates if necessary.

Making moves like these can improve your financial situation for years to come. Don’t let your finances just happen—take control and be proactive!

Here is a check list you can use as you review things before the end of the year.

All the best (financial decisions!),

Alan B Faerber, CFP® CRPC™