The final quarter of the year is critical for tax planning. Once December 31st passes, most tax-saving opportunities for the current year disappear. At Monarch Tax and Advisory, LLC, we help clients proactively manage their tax strategies throughout the year, with special focus on year-end planning to minimize tax liability and set up success for filing season.
Here are key strategies to consider before year-end.
Maximize retirement contributions - High-wage earners should evaluate catch-up contribution opportunities, as tax laws continue to evolve around retirement deferrals.
Investigate SEP or Solo 401(k) options - These retirement plans must be established before year-end to take advantage of employee contribution portions, though employer contributions can typically be made until the tax filing deadline.
Time equipment purchases strategically - If major equipment needs replacement, coordinate the timing to optimize depreciation deductions and minimize your tax bill.
Clean up your books - Well-organized financial records not only reduce tax preparation time and costs but also help identify additional deductions and prevent errors that could trigger audits.
Maximize HSA contributions - Contribution limits are $4,300 for self-only coverage or $8,550 for family coverage, plus an additional $1,000 if you're 55 or older.
Properly report health insurance - Ensure health insurance premiums are correctly reported in Box 1 of your W-2 to secure your self-employed health insurance deduction.
Establish an accountable plan - Set up this plan before year-end to properly deduct home office expenses and other business costs.
Address estimated tax shortfalls - If you've fallen behind on estimated payments, implement payroll strategies to catch up and avoid penalties.
Review W-2 compensation - S-Corp owners must take reasonable compensation. Too low puts you at audit risk; too high costs unnecessary payroll taxes.
Consider the Colorado SALT Parity election - This powerful strategy converts your state tax payment into a federal business deduction, potentially saving significant federal tax dollars.
Plan capital gains and losses - Coordinate gain recognition with loss harvesting opportunities to minimize overall tax impact.
Explore cost segregation studies - With bonus depreciation rules changing, cost segregation can accelerate depreciation deductions on real estate investments and significantly reduce current-year tax liability.
Review withholding after job changes - Changing employers mid-year can create withholding issues. Review your year-to-date withholding to avoid surprises at tax time.
Coordinate investment tax planning - Work with your financial advisor on strategic gain or loss harvesting before year-end.
Maximize HSA contributions - Contribution limits are $4,300 for self-only coverage or $8,550 for family coverage, plus an additional $1,000 if you're 55 or older.
Maximize retirement contributions - Take advantage of catch-up contributions, and if you're age 60-63, don't forget about the super 401(k) catch-up provisions.
Manage required minimum distributions (RMDs) - If your RMDs create unwanted taxable income, explore charitable giving strategies such as qualified charitable distributions (QCDs) or bunching charitable donations.
Tax laws continue to evolve, with changes affecting retirement contributions, depreciation rules, and deduction limits. Proactive year-end planning ensures you take advantage of every available tax-saving opportunity while avoiding costly mistakes. The strategies you implement before December 31st can significantly impact your tax liability and set you up for a smoother filing season.