Five smart strategies for year-end tax planning

Most of us grit our teeth through tax season…and then try to forget all about it until next April. As your friendly neighborhood wealth advisors, it’s our job to remind you that the annual head-in-sand approach to taxes isn’t going to lead to long-term financial confidence or contentment. 

With just a little bit of clear-eyed, year-end tax planning (and some guidance from a trusted tax planning advisor) tax season can be relatively painless, not to mention a yearly prompt to get organized and evaluate your giving practices. Here’s how:   

1. Do a Projection now. Review your tax projections for the current year no later than December 31st. Put taxes on your fourth quarter couple’s meeting agenda or solo check-in. Then make an appointment with your tax planning advisor to estimate your tax commitment (or refund!) and make any necessary adjustments with plenty of time to spare. 

2. Make sure you are withholding enough. If you find yourself staring down a big bill come April 15th, you can tweak things for the rest of the year and make sure your amounts are dialed in for next year. We help our clients either work with their employer to adjust their withholding amounts or finetune their quarterly estimated taxes to avoid spring surprises. (On the flip side, some of our clients find themselves projecting a big refund. If you need to soak up a refund or offset a big philanthropic donation with Roth conversions or gain harvesting, we can help with that, too.)

3. Chip away at the remaining tax liability. There are several things you can do to reduce your tax bill before the end of the year:
   • Max out your pre-tax retirement plans. We stay on top of the constantly changing contribution and deduction limits for IRAs and 401Ks to help clients make sure they are saving as much as possible—and reaping the tax benefits.  
   • Contribute to your Health Savings Account. If you have a qualified, high-deductible HSA, fill it up for more tax savings. 
   • Put more away for college. If you are saving for college-bound kids, contribute to a 529 plan, which will earn tax-free interest and can have other state tax benefits as well. 
   • Give, give, give. Optimize your generosity and your tax benefits with tools like “charitable chunking” (bundling two or more year’s worth of giving into one to qualify for itemized deductions) and Donor Advised Funds (which let givers make one large gift to a fund that can disperse smaller gifts over time).

4.  Don’t forget about state tax credits. Sound Stewardship is based in Kansas City, and both Kansas and Missouri have substantial tax credits for certain qualifying philanthropic donations. Make sure you know what your state offers, so you’re not missing out on a year-end opportunity for generosity—and tax benefits. 

5. Call us! We get it: taxes are complicated. It’s our job—our calling, even—to know all the ins and outs of projections, deduction limits, tax benefits for different savings accounts, generosity tools, state tax credits and all the rest. Yes, Uncle Sam says you do have to figure out your taxes, you just don’t have to figure them out on your own.  

Get in touch. We’ll help you tackle your taxes, on-time and stress-free. 

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