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As the end of the year approaches, it’s easy to get caught up in the hustle and bustle of holidays and closing chapters. But this season also offers a powerful opportunity to make strategic financial decisions, especially if you’ve experienced a life change.
Whether you’ve gotten divorced, started working in healthcare, or adjusted your retirement timeline, the tax decisions you make now can determine your financial confidence in the new year.
Maximize pension contributions
One of the most impactful ways to reduce your taxable income – and build toward long-term goals – is to maximize your retirement contributions.
If you’re still working, review the limits for 401(k), 403(b), and IRA contributions. Are you 50 years or older? Then take advantage of the catch-up premiums, which allow you to save even more.
For some, this may also be a good time to have one Roth conversion – moving funds from a traditional IRA to a Roth IRA. While this creates a taxable event now, it can provide tax-free growth and withdrawals later. It’s a move that requires careful planning, especially after a major transition.
Explore tax loss harvesting options
If you sold investments at a loss this year, you may be able to use those losses to offset gains – or even reduce your taxable income. This strategy is known as harvesting tax losses.
Simply put, if you sell one investment at a profit and another at a loss, these amounts can be offset against each other for tax purposes. And if your losses exceed your gains, you may be able to deduct up to $3,000 from your ordinary income (or carry the loss forward to future years).
This is especially useful in years when your income has shifted, such as after a divorce or retirement.
Use flexible spending accounts and HSA contributions
If you have a Flexible Spending Account (FSA)Keep in mind that many plans require you to use the money before the end of the year or risk losing it. Check your plan’s rules and spend the remaining dollars on eligible healthcare expenses while you can.
For those with one Health Savings Account (HSA)then consider maximizing your contributions. HSAs offer a triple tax benefit: Contributions are tax deductible, growth is tax free, and withdrawals for qualified health care expenses are also tax free.
HSAs can also serve as a powerful tool for long-term planning, not only for this year, but also for retirement care costs in the future.
Consider charitable giving
Charitable giving is not only good for the community, but can also benefit your tax plan.
If you itemize deductions, donor-advised funds you can bundle several years’ worth of charitable donations into one contribution. This can increase the tax benefit in a high-income year while allowing you to give over time.
If you are over age 70.5 and have a traditional IRA, qualified charitable distributions (QCDs) you can donate directly from your IRA to a qualified charity. These donations can count toward your required minimum distribution and reduce your taxable income.
If your financial goals are closely tied to your values, charitable giving can play a meaningful role in both.
Life change? Update your withholding or filing status
Major life events can have a direct impact on your tax situation.
Divorce, a death in the family or becoming a caregiver can change your situation archiving statusto influence deductionsor move your tax withholding needs.
If you haven’t already, check your payroll withholdings or estimated tax payments to avoid surprises in April. By making adjustments now, you ensure that your taxes reflect your current reality – not last year’s.
Conclusion: Be conscious of the time you have left
The end of the year doesn’t have to feel rushed. With the right guidance, this season can be an opportunity to slow down, reassess, and make purposeful decisions, especially after a year of change.
This article was originally published here and is republished on Wealthtender with permission.
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