6 Year-End Tax Planning Tips

Daniel Epstein, CPA, MBA

Sr. Tax Director

Bryan Strike, MS, MTx, CFA, CFP®, CPA, PFS, CIPM, RICP®

Director, Financial Planning


As this year draws to a close, explore these six actionable tax planning ideas to optimize your finances for the upcoming year.

Two men sitting and discussing taxes.

With the end of the year approaching, it’s a perfect time to consider various tax planning strategies to help optimize your financial situation next year. It’s not too late to maximize retirement plan contributions, donate to charities, and consider other actions for reducing the burden when tax time rolls around. Here are six actionable tax planning ideas as we close out the calendar year.


1. Harvest your losses

Conclude the year by reviewing your portfolio with your wealth advisor and discussing whether it makes sense, based on your goals, to sell underperforming assets for a loss. One tactic is to sell both winners and losers to offset gains with losses: tally any gains, then cash out losing positions of equal or greater value. If losses are more than gains, you can deduct up to $3,000 of those losses (and carry over additional losses to future years). Up to $3,000 of losses in excess of gains can also be used to offset ordinary income from other sources.

Keep in mind that the wash-sale rule prevents an investor from taking a loss on their taxes if the same security (or one considered substantially identical) is purchased within 30 days of the trade that created the loss. The IRS designed this rule to prevent investors from selling a security to realize a capital loss for tax purposes and then immediately buying it back to maintain the investment position.


2. Donate to a charitable cause

Take time to review the charitable contributions you’ve made this year and consider making more. Cash donations to qualified charities can be deducted up to 60% of adjusted gross income (AGI). While money and personal checks are commonly used for donations, people who itemize deductions can also donate other assets and deduct their full value.

If you have a stock that’s been held for longer than one year, determine whether it has appreciated or depreciated to find the optimal way of donating it.

  • Donating appreciated stocks to charity: You can donate appreciated stocks directly to a charity, obtaining a full deduction without incurring capital gains tax.
  • Selling depreciated stocks to make a donation: Selling depreciated stocks and contributing the proceeds to charity allows you to claim a capital loss as well as a charitable deduction on your tax return.

Contributing appreciated long-term investments to a donor-advised fund can also help you support a favorite cause while optimizing tax efficiency. You can avoid capital gains recognition and claim a tax deduction for the entire fair-market value of your donation, typically up to 30% of AGI.


3. Utilize annual gift tax exclusions

Beyond charitable contributions, when you give an asset—such as cash, stock, or vehicle—the IRS will likely want information and potential tax payments. The good news is your gift or estate can be exempt from taxation through several methods for tax-free transfer:

  • For 2023, a taxpayer may gift up to $17,000 per recipient ($34,000 for married taxpayers filing jointly) without gift tax consequences.
  • The current lifetime exemption is roughly $13 million per taxpayer but that amount is expected to drop by approximately half in 2026.
  • Making direct payments to a medical or educational provider for a loved one can also count as gifts for tax purposes.


4. Check on your RMDs

For those age 72 and older, it’s essential to complete required minimum distributions (RMDs) from tax-deferred retirement accounts by year’s end. Missing the deadline can result in a hefty 25% penalty on the RMD portion not withdrawn.

If you’re 70½ or older, you can donate up to $100,000 to a charity directly from your individual retirement account (IRA) using a qualified charitable distribution (QCD). There’s no tax deduction for the donation, but the contribution can satisfy minimum distribution requirements without adding to taxable income.


5. Consider your Roth options

A strategy using Roth retirement accounts can sometimes make the most of savings while minimizing your tax bill. With a Roth account, it’s key to consider that unlike a traditional IRA funded with pre-tax dollars, contributions to a Roth account are made with after-tax dollars. However, distributions and earnings can be withdrawn tax free at retirement, and Roth IRAs aren’t subject to RMDs. Beginning in 2024, the exemption from RMDs will be extended to Roth 401(k), 403(b), and 457(b) accounts.

  • Contribute to a Roth 401(k): If your employer offers it and you haven’t maxed out your contributions to a traditional 401(k) this year, consider making after-tax contributions to a Roth 401(k) before year-end. This strategy can provide you with tax-free withdrawals in retirement, and you can contribute up to the $22,500 limit ($30,000 for taxpayers age 50 or older) minus your traditional 401(k) contributions.
  • Leverage a “mega backdoor” Roth account: High-income earners can sometimes maximize their retirement savings through a mega backdoor Roth account, provided their workplace retirement plan allows it. After maxing out pretax 401(k) contributions, after-tax dollars can be contributed up to the annual limit of $66,000 ($73,500 for taxpayers age 50 or older) and these funds can be converted to a Roth IRA. Quick rollovers are essential for minimizing tax on investment returns.
  • Contribute to a Roth IRA: The Roth IRA can be especially helpful for those who expect to be in a higher tax bracket in retirement, because withdrawals from a Roth account are tax free and there are no RMDs. Single tax filers must have a modified adjusted gross income (MAGI) of less than $153,000 in 2023. If married and filing jointly, MAGI must be less than $228,000.
  • Explore a Roth conversion: By converting pre-tax savings from a traditional IRA to a Roth IRA, you can enjoy tax-free withdrawals in retirement. To manage the tax implications, ensure that you convert an amount that keeps you within your current tax bracket.


6. Maximize retirement plan contributions

You can still contribute the maximum amount to your tax-deferred employer-sponsored retirement plan, such as a 401(k). Meanwhile, you have until April 15, 2024, to contribute to a health savings account (HSA) or IRA. Your contribution strategy can help defer income to your retirement years when you could be in a lower tax bracket.

A 529 plan is a savings account that helps families pay for education expenses. While contributions aren’t deductible for federal tax returns, many states offer a deduction for contributing to a qualified 529 plan up to a certain dollar amount, and earnings on the contributions can grow tax free (if withdrawn for qualified expenses).

With the tax-filing deadline months away, it’s not too late to take proactive steps to manage your tax bill before the year’s end. In fact, some tasks shouldn’t wait until next year; seize valuable opportunities now to give to charities or reduce the amount of taxes owed. As always, we’re here to help. Reach out to your advisor and let’s find which strategies make the most sense for your financial plan and long-term goals.

Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.

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