As the year draws to a close, it’s time to take stock of your financial situation and prepare for the upcoming tax season. Proactive planning can help you optimize your tax liability, organize your finances, and set a solid foundation for the new year. And for someone entering or already in retirement, tax preparation is essential to making sure your money lasts.
This guide walks you through an essential end-of-year checklist, including making your final estimated tax payment if you are self-employed, so you can close out the year with confidence.
- Review and Maximize Retirement Contributions
One of the simplest and most effective ways to reduce your taxable income is by contributing to your retirement accounts. For 2024, the contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan is increased to $23,000, up from $22,500.
The limit on annual contributions to an IRA increased to $7,000, up from $6,500. The IRA catch-up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0) to include an annual cost-of-living adjustment but remains $1,000 for 2024.
For self-employed individuals, consider contributing to a SEP-IRA or solo 401(k). These accounts often have higher contribution limits, providing greater opportunities for tax savings. Consult with your financial advisor about which plan is right for your business.
- Harvest Tax Losses
If you’ve experienced investment losses this year, you may be able to offset capital gains by selling underperforming assets, a strategy known as tax-loss harvesting. This tactic allows you to balance gains and losses, reducing your overall taxable income. Be mindful of the IRS’s wash-sale rule, which prohibits repurchasing the same or substantially identical security within 30 days of selling it.
- Monitor Capital Gains Distributions
If you own mutual funds, check the fund’s capital gains distributions before the year ends. Many funds distribute gains in December, and if you purchase shares just before the payout, you could end up owing taxes on those distributions—even if you didn’t benefit from the fund’s performance earlier in the year.
- Make Charitable Contributions
Donating to qualified charitable organizations not only supports causes you care about but also provides tax benefits. Whether it’s a cash donation, appreciated securities, or a Donor-Advised Fund (DAF), contributions made by December 31 can be deducted on your 2024 tax return (up to certain IRS limits).
If you’re over 70½ and have a traditional IRA, consider a Qualified Charitable Distribution (QCD). This allows you to donate up to $100,000 directly from your IRA, which can count toward your required minimum distribution and may reduce your taxable income.
- For Self-Employed Individuals: Review Your Final Estimated Tax Payment
For self-employed individuals, investors, and those with substantial income outside of traditional employment, ensuring your estimated taxes are on track is critical. The IRS requires quarterly estimated tax payments to avoid penalties, with the fourth and final payment due by January 15, 2025.
Review your income for the year and calculate whether additional taxes are owed. If you’re unsure, consulting a tax professional can help ensure you’re meeting your obligations without overpaying.
- Maximize Health Savings Accounts (HSAs)
If you have a high-deductible health plan, contributing to an HSA can reduce your taxable income while helping you save for future medical expenses. For 2024, the HSA contribution limits are $3,850 for individuals and $7,750 for families, with an additional $1,000 catch-up contribution if you’re over 55.
- Use Flexible Spending Accounts (FSAs)
If you have a workplace Flexible Spending Accounts (FSA) check your plan’s rules to see if unused funds will roll over to the next year or if they follow a “use it or lose it” policy. Schedule appointments, refill prescriptions, or make other qualified expenses before December 31 to avoid losing those funds.
- Review Your Withholding and Adjust for Next Year
If you’ve faced surprises during tax season, now is a good time to review your withholdings and adjust them for the upcoming year. Use the IRS’s online Withholding Calculator to estimate the correct amount to withhold from your paycheck in 2025.
- Organize Financial Records
Start gathering your financial documents now to make tax season easier. This includes W-2s, 1099s, receipts for deductible expenses, and records of estimated tax payments. Staying organized will save you time and stress when filing your tax return.
- Evaluate Your Financial Goals
Finally, take some time to reflect on your financial progress this year. Are you on track to meet your goals? Are there adjustments needed to your spending, saving, or investing strategies? The end of the year is an ideal moment to recalibrate and plan for the future.
Final Thoughts
Closing out the year with a well-executed financial checklist ensures you’re taking advantage of all available opportunities to minimize your tax liability and strengthen your financial position. Whether it’s maximizing contributions, making charitable donations, or preparing for your final estimated tax payment, these steps can help you end the year on a high note.
Hi, I’m Zack Swad, CERTIFIED FINANCIAL PLANNER™ (CFP®) professional and founder of Swad Wealth Management, and I specialize in helping individuals over age fifty discover when they can retire, invest the right way for their personal plan, and make sure their money lasts in retirement. I also serve individuals and couples who are already retired and looking for a guide to help them achieve these same key objectives. For personalized retirement advice and strategies tailored to your unique financial situation, schedule a 15-minute Intro Call with me today. Let’s work together to optimize your financial outcomes and set you up for success in the years ahead.
