End of Year Tax Decisions You Should Look Into

As the end of the tax year looms once more, it is the time of the year that people start to think about the different ways they can lower their tax bill legally and improve their overall financial strategy.

Luckily, there are multiple proactive steps you can take between now and the end of the year to help you get ahead and ensure that you’re not paying any more than you need to and that you’re not making any financial faux pas.

Max Out 401(k)

Not everyone is in a position to do this, but if you can, look at maxing out your 401(k) contributions. If you’re employed, you can usually contribute up to $23,500. If you’re over 50, there is an allowance of an additional $7,000 for catch-up.

Be mindful of any employer contributions or matches, as there’s an upper limit of $70,000 total for the year. But if you have wiggle room and you can afford it, putting money here is a good idea. Don’t forget your 403(b) contribution, too, if you can’t add any more to your 401(k).

Gift Assets

Gifting cash is typical at this time of year. Whether you’re a regular donor to your favourite charity or you like to spread payments across different organizations, cash donations help lower your tax bill and support others. But that’s not the only thing you can donate. Non-cash gifts can include stock or property, which could potentially yield greater tax benefits — using an individual income tax service can help you understand if that is worthwhile and better for your personal circumstances.

Fund IRAs

Traditional IRAs can be funded right through to April 2026, so it’s not technically something you need to do before the end of the year. You can contribute up to $7,000 or 100% of earned income. Whatever is less.

The same applies to Roth IRAs, too, but remember, as Roth IRAs are made from after-tax income, you cannot use this to reduce taxable income for the year they are made. Again, expert financial advice can help you out here.

HSAs

Optimizing HSAs, if you have one, can offer greater tax benefits. Health Savings Accounts are a triple tax advantage. — tax-deductible contributions, deferred earnings are both federal tax-free, and you can get federal tax-free withdrawals for qualified medical costs too. Plus, you can roll over unused HSA balances to the next year to invest. Limits for HSAs are $4,300 for individuals and $8,550 for families, and you can make contributions right up until tax day, too.

Use QCDs

If you’re over 70-½, you can send a “qualified charitable distribution” from your IRA to charity up to a maximum of $105,000 a year. This donation keeps taxable IRA assets out of your adjusted gross income and taxable income.

How to make these donations depends on your status and the original cost of your shares. Again, getting tax advice can help you understand if this is worthwhile for you and how to make the donation matter for tax time.