Helpful Tips: How to Prepare Your Finances Before Year-End

As we approach the holiday season, it’s easy to let financial planning slide to the bottom of your to-do list. However, November is actually the ideal time to assess your finances and take steps that can positively impact your tax situation for the year ahead. By planning early, you can enjoy a stress-free holiday season while setting yourself up for a smooth tax filing process next year. Here are some essential tips to prepare your finances before the year ends.

1. Review Your Income and Expenses

Take a close look at your income and expenses to get a clear picture of where you stand financially. Reviewing these figures now will help you identify any necessary adjustments before the close of the year. For instance, if your income has increased significantly, you may want to consider strategies for reducing your taxable income to avoid a higher tax bill. Or, if you’re a business owner, evaluating your expenses could reveal opportunities to make year-end purchases that can be deducted in this tax year.

2. Maximize Your Tax-Advantaged Contributions

If you haven’t yet maxed out contributions to retirement accounts such as a 401(k) or IRA, now is the time to do so. Contributions to tax-advantaged accounts reduce your taxable income, offering potential savings come tax season. For 2024, you can contribute up to $22,500 to a 401(k) or $6,500 to an IRA (with an additional $1,000 catch-up contribution if you’re over 50).

Don’t forget other tax-advantaged accounts like a Health Savings Account (HSA) if you’re eligible. HSAs not only reduce taxable income but can also serve as a long-term savings vehicle for medical expenses, with unused funds carrying over year-to-year.

3. Make Charitable Contributions

The holiday season is a wonderful time to give back, and it can also reduce your tax liability. Charitable donations made before December 31 can be deducted if you itemize on your tax return. Be sure to keep documentation of all donations, as the IRS may require proof. Non-cash contributions, such as donated clothing or household items, can also qualify, but make sure to keep a detailed list and consider obtaining an appraisal for high-value items.

4. Consider Timing Business Expenses

If you’re a small business owner or self-employed, consider timing certain expenses to optimize your tax deductions. Making necessary purchases, such as new equipment or supplies, before year-end can reduce your taxable income. Additionally, prepaying some expenses (such as rent or insurance) could allow you to maximize deductions for this year, especially if you use the cash basis accounting method.

5. Assess Capital Gains and Losses

If you have investments, now is the time to review your portfolio and evaluate any unrealized capital gains or losses. By strategically selling investments, you can offset capital gains with losses, a strategy known as “tax-loss harvesting.” This can help reduce your tax liability, especially if you’ve had a successful investment year. Just be mindful of the “wash sale rule,” which disallows a deduction for a loss if you repurchase the same investment within 30 days.

6. Use Any Remaining FSA Funds

If you have a Flexible Spending Account (FSA) for healthcare expenses, remember that many FSAs have a “use it or lose it” policy, meaning unused funds do not roll over into the next year. Check your plan’s specifics to see if there’s a grace period or carryover option, but if not, plan to use up any remaining funds by scheduling medical appointments, filling prescriptions, or purchasing eligible items like eyeglasses or medical supplies.

7. Plan for Estimated Tax Payments

If you’re self-employed or have other income sources that aren’t subject to withholding, make sure you’re on track with your quarterly estimated tax payments. The fourth-quarter payment is due in January, but planning now will help ensure you avoid a big surprise tax bill — and any associated penalties — when you file your return. Calculating your total income, deductions, and expenses now will give you a good estimate of what you owe.

8. Organize Your Tax Documents

Tax season can be a lot less stressful when you have everything in order. Take a few minutes to organize your receipts, statements, and other financial records, which will make filing much easier and more efficient. Consider using digital tools or apps to securely store these documents and avoid misplacing anything important during the busy holiday season.

Take a Proactive Approach

Taking a proactive approach to tax planning before year-end is one of the best ways to minimize tax liability and maximize financial opportunities. A little planning now will help you avoid the holiday rush and enjoy peace of mind going into the new year. At Loeffler Financial Group, we’re here to support your year-end financial planning needs. Contact us today to learn more about how we can help you make the most of this tax season.

Happy Holidays — and happy planning!