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Be Strategic with Year End Planning

It's December. This means that we've got days, maybe a couple of weeks, to do a couple of year-end tweaks to manage taxes for this year.

Depending on how aggressive you want to be, and how volatile or variable your income has been this year, here are a few things to consider.

(Especially if this has been a year where you've had a bunch of stock vests or options exercise and your income's gone up.)

Reviewing Retirement Accounts

Make sure you've maxed out your company-sponsored retirement account. If there are two incomes in the household, make sure both of you, even if you put away 100% of your income for the month of December into the retirement account, are maxing out your tax deductions on your retirement accounts this year.

Accelerate Charitable Giving

Like the title says, accelerate charitable giving. Let's say you have an organization that you give monthly to, and this year you had a big bump in your income. This might be a good year here at the end of the year to go to that organization and say, "Hey, I'm going to give you all of next year's contributions in December this year." Get the money off your books.

Manage your balance sheet with the IRS like a business person would, and look to wipe assets off the books this year and manage your tax liability down.

Consider using a donor-advised fund. If you've had a radical shift in income this year, this might be a year to consider setting up a donor-advised fund and putting 2, 3, 5, or 10 years’ worth of your planned giving for those years into a donor-advised fund and get all of the bang for all of the tax-deduction buck this year.

Donating Appreciated Assets to Charity

When you're making that contribution to a donor-advised fund, don't give cash necessarily. Work with your advisor. Call us. We'll go through your non-retirement account and pick off the positions where you have the most capital appreciation to be avoided.

Let's say you have a position that you put $25,000 in, and now it's worth $50,000. If you donate that $50,000 position into your donor-advised fund, you're going to:

  1. Avoid the capital gains on the difference between 25,000 and 50,000.
  2. Get a full charitable deduction for the full amount of the value of the stock that you're donating into a donor-advised fund or to the charity of your choice.

Be Strategic, Not Passive with Year End Planning

So, there are a few different ways to manage that tax liability as we skid into the end of the year here. Don't wait for April 15 to come around and the accountants to show up and say "Let's see how much you owe." Be strategic, be aggressive, manage the tax liability legally, but manage it this year before the year’s out by

  1. Maxing out your retirement plan contributions within your companies
  2. Accelerating contributions to your favorite charities
  3. Using a donor-advised fund
  4. Gifting appreciated stock

And if you have self-employment income, by all means, give us a call. If you have contract work or self-employment income, there are other forms of retirement accounts, some of which need to be signed off on and put in place before the end of the year to take advantage of tax deductions available to you for 2022.

Hope you're having a great day and you're having a wonderful holiday season. Here at Vizionary Wealth Management, we're always here with perspective for the decisions ahead. Call anytime. Take care!