For many, tax season is a looming enigma. And that may be especially true for this tax year due to multiple tax law changes — and the planning opportunities they can bring.

Come tax time next year, will you have to pay in? Will you be getting a refund? How much? Could either outcome affect your daily life or how quickly you could achieve that next big life goal?

With a little year-end tax planning — or requesting a year-end tax projection from our team — your taxes don’t have to be shrouded in mystery.

What is tax planning, you ask? It’s a periodic check-in on your tax situation. It allows you opportunities to review your income, plan for open enrollment, and tweak your investments to make the most of your money. It’s a view of what you can expect in terms of taxes for the year. It gives you time to adjust your finances early on, at mid-year or just before the tax year ends, to better meet your needs.

Now that we’re in the fourth quarter, isn’t it time you did a little end-of-year tax planning of your own? Here’s where you can start.

End-of-year tax strategies 101

Send your most recent pay stub our way. We’ll review your gross — aka before-tax — earnings and total withholdings. We’ll then extrapolate them to project your annual income. Then, we’ll use this analysis to help you plan for tax season and let you know if you’re on track to receive a refund or likely to end up with a balance due. 

Together, we’ll strike the right balance with your remaining paychecks for the year by adjusting your withholding. The goal is to stay within $1,000 on either side of zero come tax time. That means less than a $1,000 refund or less than a $1,000 balance due. Here’s why: If you’re set to receive a large refund, you’ve been giving Uncle Sam a big interest-free loan. If it looks like you’ll owe quite a bit in taxes because of too-low withholding throughout the year, you’ll owe Uncle Sam money — and possibly a penalty, too. Tax planning can help you get to the side you want to be on without reaching either extreme.

What if the W-4 we create for you to provide to your payroll or human resources team won’t do the plus-or-minus $1,000 trick? We can help you create a savings plan to prepare for a balance due. After we’ve reviewed your pay stub and you’ve submitted that W-4 to adjust your withholding, if necessary, it’s time to dig into your basics and benefits. You can follow this list in order, skipping over the items that don’t apply to you and digging deeper into those that affect you more.

1. Will you itemize or take a standard deduction? 

It’s important that you understand the increased standard deduction amounts as you evaluate your numbers and consider whether you can itemize. Could you fare better with a standard deduction for this year? 

Based on the higher standard deductions of late, it might not only be easier but also more financially beneficial to take a standard deduction, even if you’ve itemized in the past. And you don’t have to make this decision alone. We’ll help you figure it out as part of your tax projection.

2. Share the love. 

This year, there’s no adjusted gross income floor on charitable contribution deductions. Just make sure that your charity of choice is on the IRS’s tax-exempt list, so you’re eligible for the deduction. For more details, check out Charitable Giving Strategies: from Tax-Advantaged Donations to Donor-Advised Funds. 

3. Harvest your losses. 

Ever heard of tax-loss harvesting? Picture this: You have a loss on an investment. A lemon. So you sell that investment and reinvest the funds into something else. Now you have a capital loss that you can use to offset capital gains or up to $3,000 of ordinary income. Lemonade! At the same time, assuming your replacement investment is similar — but not identical — to the investment you sold, your portfolio should still be invested appropriately.

It can all add up to tax savings, so review your taxable investment accounts toward the end of the year. Consider whether you can harvest any tax-loss lemons. Be careful that you do not buy an identical investment — in any account you own — 30 days before or after the date you sell an investment for tax-loss harvesting. Or, if you don’t already, let us take investment management off your plate. It’s included in your ongoing implementation support, and we’ll also take care of tax-loss harvesting for you.

4. Double your money. 

If you haven’t contributed enough to your workplace retirement plan to receive your employer’s full dollar-for-dollar match yet, now’s the time. It’s usually up to a certain percentage of your gross income, so focus on contributing as much as possible at least up to that amount. Invest more if you can to get more of your dollars into your retirement account and out of your taxable income. Why now? You likely still have a few paychecks coming through before the end of the year, and the “free money” match expires — and restarts for the next tax year — when the clock strikes midnight on New Year’s Eve.

5. Take your required minimum distributions (RMDs).

Do you have a beneficiary IRA or a beneficiary Roth IRA? Will you be 73 or older by the end of the year and have your own traditional IRA or dollars in a pre-tax retirement account? If so, you need to take your RMD before the end of the year. Exceptions are limited, and if you don’t, you’ll owe a penalty. 

While it’s been reduced from 50% of what your RMD should have been, the penalty can still be painful. If you miss yours, you’ll be penalized 25% of the amount not taken by the deadline. That drops to 10% of what the RMD should’ve been if you correct it within two years, but it’s still a decent portion of your money. Ouch! 

Want to know what your RMD is for this year? Just ask!

6. Give it away. 

You can gift up to the annual gift tax exclusion limit to any individual gift-tax-free until Dec. 31 — without having to file a gift tax return. Couples who choose to double that amount will have to file a gift tax return if taking advantage of gift-splitting. We’ll take care of filing your gift tax return, Form 709, for you as it’s also part of your ongoing implementation support. 

Want to give more? You could gift plenty more without paying any gift tax, but you’d have to file a gift tax return if you give anyone an amount over the exclusion. You’d also be using up some of your lifetime gift and estate tax exemption, so gift wisely.

One legal loophole: You can “gift ahead” in a 529 college savings plan without having to file a federal gift tax return. It’s the equivalent of five years of gifting without using any of your lifetime gift and estate tax exemption.

7. Contribute — or plan your contributions.

The deadline to contribute to your IRA or Roth IRA (or backdoor Roth!) and HSA for this tax year extends to April 15 next year. If you haven’t already made those contributions, this is the perfect time to get saving! 

Bonus tip

With year-end coming up and tax season only a few months away, it’s also time to check in on your emergency/opportunity fund. This subset of savings can help in the event you receive an unexpectedly hefty tax bill, allowing you to stay on track to reach your short- and long-term goals.

Simple Tax To-Dos

Clearly, there’s a lot to consider when it comes time for year-end tax planning, and it can be a lot to think about and do — especially if you wait. So grab that last pay stub, see what your tax situation looks like compared to your expectations, and make any year-end adjustments necessary to keep you on track today. 

Making good tax decisions now can also set you up for success in the year to come, so consider how the changes you make today could affect you. You may want to keep a few other tax-planning considerations in mind as their deadlines extend beyond the end of the calendar year, like: 

• investing in your health savings account (HSA), 
• adding funds to your traditional or Roth IRA, and 
• contributing the right amount to — and using the funds in — your flexible spending account (FSA). 

A reminder that you have until Tax Day to make an IRA or Roth IRA contribution. And although you can’t change your regular FSA contributions until your employer’s next open enrollment period, you may be able to invest in your health savings account (HSA) outside of payroll to provide yourself with additional tax-advantaged savings. Also, while you may be able to carry over $500 in your FSA in some plans, be sure to spend or withdraw the appropriate funds by the last day of your benefits year to avoid forfeiting all or a portion of it.

After you’ve completed your year-end tax planning, do yourself — and your finances — a favor by setting a reminder on your calendar for your next tax-planning check-in. Better yet, make it easy and delegate it to us! 

Don’t forget: Tax Day is April 15!