As the year winds down, it’s essential to focus on tax planning to ensure you are well-prepared for the upcoming tax season. Effective tax planning can help you maximize your refund or minimize what you owe. Below is a detailed guide with specific, actionable steps to help you organize your financial and tax-related affairs before the year ends.
1. Assess and Adjust Withholdings
Examine your current withholdings on your paycheck to ensure they reflect your anticipated tax liability. Adjustments here can prevent a large tax bill or excess refund, smoothing out your cash flow throughout the year. Use the IRS Tax Withholding Estimator to see if your withholdings align with your projected tax liabilities. If discrepancies are found, update your Form W-4 with your employer by December 31 to make any necessary changes.
2. Maximize Retirement Contributions
Increasing contributions to retirement accounts like 401(k)s, IRAs, and Health Savings Accounts (HSAs) can lower your taxable income. Check contribution limits for the year and try to contribute the maximum allowable amount. If you’re 73 or older, be sure to take required minimum distributions (RMDs) from your retirement accounts by December 31 to avoid severe penalties.
3. Leverage Tax-Loss Harvesting
Review your investment portfolio for any underperforming stocks or funds. By selling these investments, you can realize losses that offset any capital gains you’ve made, which can help reduce your overall tax bill. This strategy, known as tax-loss harvesting, should be implemented after consulting with a financial advisor to ensure it fits your long-term investment strategy.
4. Bunch Deductible Expenses
For taxpayers who itemize deductions, consolidating significant deductible expenses into one tax year can be beneficial. This strategy, known as “bunching,” can help you surpass the standard deduction limit and maximize your tax savings. Consider scheduling payments for medical expenses or making charitable contributions by year-end to apply these deductions to the current tax year.
5. Utilize Your FSA
Ensure you fully utilize the funds in your Flexible Spending Account (FSA). Since FSAs operate on a “use-it-or-lose-it” basis, review your balance and spend the remaining amount on eligible medical expenses before the year ends to avoid losing these funds. Additionally, consider scheduling any upcoming medical appointments or purchasing necessary healthcare products now, as some plans may allow you to use remaining FSA funds for qualified expenses into the early months of the new year.
6. Charitable Contributions
Donate to charitable organizations by December 31 to ensure these contributions are deductible for the current tax year. This not only reduces your taxable income if you itemize deductions but also supports worthwhile causes during a critical fundraising period for many nonprofits.
7. Consider a Roth IRA Conversion
If you have a traditional IRA, consider converting it to a Roth IRA. This move could result in tax-free growth and withdrawals in retirement. Be aware that this conversion will increase your taxable income for the year, so it should be planned with the help of a financial advisor to understand the implications fully.
8. Review Your Filing Status and Deductions
Significant life changes – such as marriage, divorce, or a child’s birth – can affect your filing status and tax liabilities. Determine whether you’ll benefit more from taking the standard deduction or itemizing deductions, especially if you’ve incurred substantial expenses such as mortgage interest or medical bills.
9. Prepare Documentation Early
Organize your financial records, receipts, and documents as early as possible. This includes gathering forms like 1099s, W-2s, or year-end pay stubs. Preparing these documents in advance can streamline your tax filing process, making it less stressful as deadlines approach. Additionally, early preparation allows you to identify potential deductions and credits you might miss in a last-minute rush. This thoroughness can also highlight any inconsistencies or errors in reported income or deductions, giving you ample time to address them before filing.
10. Plan for Special Situations
If you were affected by natural disasters like Hurricane Beryl in Texas or Hurricane Debby in the Southeast, be aware that the IRS often grants extended filing deadlines. These extensions can provide additional time to gather documents and plan your tax strategy without the rush. It’s important to check the IRS website or consult with a tax professional to confirm the specifics of any extensions or additional relief options available, such as special deductions for property losses not covered by insurance. These provisions are designed to assist in recovering financially from the disaster while managing tax obligations.
11. Estimate Your Tax Liability
Use free online tools to estimate your tax liability based on your current income, deductions, and credits. This estimation will help you plan for any potential payment or refund, allowing you to better manage your finances. Understanding your tax liability early also aids in making strategic decisions, such as whether to defer income or accelerate deductions, based on anticipated changes in income or tax laws. Additionally, this proactive approach can prevent the surprise of a large tax bill or optimize the size of a refund, aiding in better financial planning and budgeting throughout the year.
12. Consult a Professional
Navigating the complexities of tax laws and personal finances can be challenging. We invite you to consult with us for personalized guidance tailored to your specific situation. We can also communicate with your CPA about strategies for you and your family.
By taking these steps, you can not only potentially reduce your tax bill but also enhance your financial well-being as you head into the new year. Remember, effective tax planning is about understanding how to leverage current laws to work in your favor, helping you to pay only what you owe while maximizing potential benefits.
If you have any questions, give us a call. For additional insight, read Chapter 6 of “Wealth on Purpose” by Bryan Ballentine.
Sources: Located at the bottom of the article
Golf Tip of the Week:
One of golf’s best short-game coaches explains why you’re missing so many putts
Last year, we asked short-game guru James Sieckmann to share some of his most treasured secrets for every shot around the greens. The advice was so good, and so well received, we had to go back for a little more.
Sieckmann, a Golf Digest 50 Best Teacher who has coached countless tour pros on greenside play, decided to focus his latest tip for you on putting. It’s the one area of golf where you can compete with the game’s best players from a physicality standpoint, so better putting all comes down to having the right approach mentally.
Here’s his advice:
“The most common complaint I get from good players at my academy is, ‘I don’t make enough putts from 8-to-20 feet. Most claim to putt very well when they’re in close, so their stroke must be functional. They also say they’re skillful at controlling distance but nothing seems to go in on these mid-range putts. What gives?
“I call these length putts ‘difference makers.’ Success with them is about matching line and speed, and if you want to be great at that skill, it starts with an organized way to build a great image of the putt you are facing.”
“Unfortunately, most players get the first step wrong by standing behind their ball and choosing a start line. They see two points—the ball and a projected line left or right of the cup. The problem is, using only two points does not necessitate a specific speed. Unless you get lucky and guess the pace right, you will miss.”
Use this four-step process instead to hole more putts, Sieckmann says.
- Find the entry point
Stand on the opposite side of the cup from your putt and picture the entry point of the ball as it would roll into the hole (the front door, so to speak). In the photo (above), I put down two sleeves of golf balls around a hole to illustrate a gateway I’m trying to get the ball to roll through on its way to the bottom of the cup.
- Look from the mid-point
On your walk back to the ball, stop at the mid-point between it and the hole and look to see if you’re facing an uphill or downhill putt.
- Visualize the ‘action track’
Keeping the entry point (front door) in mind, go back to your ball but visualize an “action track” of the ball on its intended journey to the hole.
- Pick your start line
Pick your start line, but instead of projecting a line or target out by the cup, choose something within a few feet of your ball to roll over or roll past to the left or right. Your start line is the “near target” and your entry point into the hole is the “far target,” Sieckmann says.
“This image of the near target and far target requires one exact speed,” he says. “And if held adequately, it will govern your subconscious and allow you to react athletically put the right pace on the ball allowing you to hole more of the difference-maker putts.”
Golf Tip adapted from golfdigestcomi
Recipe of the Week:
Chicken Enchilada Soup
Ingredients
3 tablespoons olive oil
1 red onion, finely chopped, plus more for garnish
2 cloves garlic, minced
Kosher salt and freshly ground black pepper
1 tablespoon chili powder
1 tablespoon ground cumin
1/4 teaspoon smoked paprika
Pinch cayenne pepper
One 19-ounce can red enchilada sauce
One 4 1/2-ounce can diced green chiles, with liquid
1 chicken bouillon cube, crumbled
2 boneless, skinless chicken breasts (about 1 1/2 pounds)
1/2 cup vegetable oil
2 corn tortillas
1 cup shredded Cheddar
4 ounces cream cheese, diced, at room temperature
One 10-ounce bag frozen corn
Chopped avocado, chopped cilantro, and lime wedges for garnish, optional
Directions:
- Heat the olive oil in a large heavy pot over medium-high heat. Add the onion, garlic, 1 teaspoon salt and a few grinds black pepper and cook, stirring occasionally, until the vegetables soften, 2 to 3 minutes. Add the chili powder, cumin, smoked paprika and cayenne and stir until combined with the oil. Add the enchilada sauce, green chiles with liquid, bouillon cube, 8 cups water, 1 teaspoon salt and a few grinds of black pepper and stir. Add the chicken breasts. Bring the mixture to a boil then reduce to a simmer, cover and cook until the chicken is tender and shreds easily with 2 forks, 25 to 30 minutes.
- Meanwhile, heat the vegetable oil in a large skillet over medium heat. Cut the tortillas into 2-by-1/2-inch strips. Add them to the hot oil and fry until golden-brown and crispy, 2 to 3 minutes. Use a slotted spoon to transfer to a plate lined with paper towels to drain. Sprinkle with salt.
- Remove the chicken from the pot and place it in a medium bowl. Use 2 forks to shred it; set aside. Stir the Cheddar and cream cheese into the soup until melted, about 2 minutes. Add the corn and the shredded chicken and stir until the corn is warmed through, 2 to 3 minutes.
- Ladle the soup into bowls and top with the tortilla strips and chopped red onion. Garnish with avocado, cilantro and lime juice, if desired.
Recipe adapted from foodnetwork.comii
Travel Tip of the Week:
How to Score Companion Passes to Get Free Flights — and Which Airlines Offer Them
This tool is one of the best ways to score a free flight. Here’s how to use it effectively.
If you’re something of a frequent flier — or if you live in a Southwest Airlines hub — you’ve probably heard the term “companion pass” thrown around a few times. Ultimately, a companion pass is exactly what it sounds like: a certificate that allows you to bring a friend on a flight for (mostly) free. Of course, there’s fine print involved that severely limits the power of a companion pass, so free long-haul business-class tickets are rare. But you can indeed get a free or heavily discounted plane ticket with a companion pass, usually in economy.
In a nutshell, companion passes are two-for-one deals, though their use is often restricted by fare class and route, and you’ll still have to pay taxes and fees. You must also be on the same reservation as your companion.
The most well-known companion pass is, arguably, the Southwest Companion Pass, because it’s the only one that’s reusable for a minimum period of a year. The rest of the companion passes out there are one-time-use annual perks for airline co-branded credit cards; their redemption value can often cover the card’s annual fee.
Here’s everything you need to know about the major airline companion passes.
The Southwest Companion Pass is the airline’s top-tier status reserved for frequent fliers. Once the status is earned, the traveler can designate one person who can tag along with them on every flight for free, though they are still charged for taxes and fees, which start at $5.60. In order to earn the pass, you’ll need to fly 100 flights on Southwest or earn 35,000 Rapid Rewards points in a calendar year — whenever you cross the threshold, you’ll earn Companion Pass status for the remainder of the calendar year and the following year.
Rapid Rewards points can be earned on Southwest airfare, partner bookings for hotels and rental cars, using a Rapid Rewards co-branded credit card, shopping through the Rapid Rewards shopping portal, and dining at qualifying restaurants. Keep in mind that Rapid Rewards credit card sign-up bonuses count toward status, so that’s one way to jumpstart your journey toward the Southwest Companion Pass.
Alaska’s Famous Companion Fare
This isn’t a true companion pass, but rather a companion discount. Travelers with the Alaska Airlines Visa Signature Credit Card or the Alaska Airlines Visa Business Credit Card receive a one-time code on each card anniversary that allows them to buy a round-trip economy ticket for a travel companion for $99 plus taxes and fees. Existing cardholders don’t have a spend requirement to earn the companion fare, but new cardholders will have to spend at least $6,000 a year to earn it.
American Airlines Companion Certificate
Like Alaska’s Famous Companion Fare, American Airlines’ Companion Certificate is also a companion discount. Travelers who hold the following credit cards are eligible for the certificate after spending $20,000 or $30,000 in a calendar year, depending on the card: AAdvantage Aviator Red World Elite Mastercard; AAdvantage Aviator Silver Mastercard; AAdvantage Aviator World Elite Business Mastercard; or the CitiBusiness/AAdvantage Platinum Select Mastercard. The certificate can be redeemed for $99 plus taxes and fees on one round-trip economy-class ticket in the continental U.S. However, residents of Alaska, Hawaii, Puerto Rico, and the U.S. Virgin Islands can use it on a round-trip flight from their home airport to a destination in the continental U.S.
British Airways Travel Together Ticket
A true companion pass, this ticket can be earned by British Airways Visa Signature Credit Card holders who spend $30,000 in a calendar year. The ticket is valid in all classes — even business class — on round-trip flights originating in the United States. Like all companion passes, you must pay taxes and fees, as well as carrier chargers, and British Airways’ fine print mentions how expensive that can get: “For a peak, return flight from Los Angeles to London, these can amount to $651.33 in economy (World Traveller) and $1,984.57 in business (Club World).” That said, you’re still getting a heavy discount, since a standard plane ticket would also include those charges.
Delta Companion Certificate
Four credit cards issue Delta companion certificates on each card anniversary: Delta SkyMiles Platinum American Express and Delta SkyMiles Reserve American Express, plus their business counterparts. The Platinum companion certificate can be used on one round-trip journey within the continental U.S. in economy, while the Reserve companion certificate can also be used in Comfort+ and first class. While you’ll still have to pay taxes and fees, Delta caps the total amount to $75. Availability can be limited, though, as the companion certificates can only be used in certain fare classes.
Hawaiian Airlines Companion Discount
Holders of the Hawaiian Airlines World Elite Mastercard or the Hawaiian Airlines World Elite Business Mastercard are given a one-time 50-percent-off companion discount code for a round-trip economy flight between Hawaii and North America during their first year of card membership. On each card anniversary after that, cardholders receive $100 off one companion flight per year between Hawaii and the continental U.S. in economy.
Lufthansa Companion Ticket
After making a single purchase with their card in the first year they have it, Miles & More® World Elite Mastercard cardholders are given an economy-class companion pass for a round-trip flight from the U.S. to Europe, Africa, the Middle East, or Asia on Lufthansa. It can only be used in certain fare classes, and travelers are still responsible for paying taxes and fees. After that, on each card anniversary, cardholders receive another companion ticket.
Tip adapted from travelandleisure.com iii
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Sources:
End-of-the-year Tax Preparations and Financial Planning
Disclosure:
Ballentine Capital Advisors is a registered investment adviser. The advisory services of Ballentine Capital Advisors are not made available in any jurisdiction in which Ballentine Capital Advisors is not registered or is otherwise exempt from registration.
Please review Ballentine Capital Advisors Disclosure Brochure for a complete explanation of fees. Investing involves risks. Investments are not guaranteed and may lose value.
This material is prepared by Ballentine Capital Advisors for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.
No representation is being made that any account will or is likely to achieve future profits or losses similar to those shown. You should not assume that investment decisions we make in the future will be profitable or equal the investment performance of the past. Past performance does not indicate future results.
Advisory services through Ballentine Capital Advisors, Inc.
iihttps://www.foodnetwork.com/recipes/food-network-kitchen/chicken-enchilada-soup-17947387
iiihttps://www.travelandleisure.com/what-is-a-companion-pass-7229558
