Year-End Tax Planning for Houston Individuals and Businesses
As the end of each year approaches, it’s time for tax-paying individuals and businesses in Houston to consider their year-end tax planning strategies. Expert tax planning and tax preparation services can help individuals and small business owners further their financial goals, maximize tax savings, and build wealth as retirement approaches.
For Houston taxpayers, the following strategies are worth considering for year-end tax planning purposes:
- Optimize contributions to your retirement accounts
- Maximize your required minimum distributions (RMDs)
- Offset capital gains with tax loss harvesting
- Reduce tax liabilities with charitable donations
- Transfer wealth to family members without triggering estate or gift tax exemptions
- Accelerate income or defer expenses (for business owners)
We will review each of these tax planning strategies and how they can be leveraged by individuals and business owners to minimize tax liabilities.
Optimize Retirement Account Contributions
Many employed individuals have access to a 401(k) or Roth 401(k) through their employer. If an employer matches employee contributions to those accounts, contribute the maximum if possible – otherwise you’re leaving money on the table. If you expect your tax rate to be lower in retirement, a standard 401(k) will provide a tax advantage, as contributions are tax free, as well as any earnings from those contributions. If you expect greater tax liabilities in retirement, a Roth 401(k) makes sense, as contributions are taxed at your current rates, but distributions are tax-free as long as you’ve held the account for long enough.
Individuals can open a traditional or Roth IRA to supplement retirement benefits and contribute up to their limits ($7,000 per account, per year – or $8,000 per account, per year for taxpayers over 50). This is also an option for those who contribute to employer-backed retirement accounts. Traditional IRAs are taxed when taking distributions, while Roth IRAs are taxed when making contributions. Roth IRAs aren’t available to high income earners, and annual contribution limits are modest, so consider a consultation with a reputable CPA or tax planning service to verify eligibility and to ensure you are optimizing your retirement accounts.
Maximize Your Minimum Required Distributions for Year-End Tax Planning
Most individuals will need to start taking RMDs out of their retirement accounts at age 73. Failing to do so will mean a higher tax bill in later years, as the portion you don’t take out will incur a 25 percent tax penalty when it is withdrawn.
A tax planning accountant or CPA can help their clients optimize their RMD tax savings by timing distributions (start withdrawing them when first available without penalties) or converting the account to a Roth account. Charitable donations to a qualified charity can also satisfy RMD requirements and do not count as taxable income (though they aren’t eligible for deduction, either).
Reduce Capital Gains Taxes by Harvesting Losses
As the end of the tax year approaches, it’s the right time to review your investment portfolio for tax saving purposes. Specifically, individual taxpayers can realize any capital losses to offset the taxes incurred by capital gains. To execute this tax planning strategy, the taxpayer must not have acquired the asset (or a similar asset) within the previous 30 days. Losses can be used to offset capital gains on a 1-to-1 basis, and if there are more losses than gains to realize, the tax savings may be carried forward to future tax years.
Reduce Tax Liabilities by Making Charitable Donations
Charitable donations provide opportunities for tax deductions and is a popular tax planning strategy for those who make donations a regular occurrence. If donating to a qualified charity, individual taxpayers may deduct cash donations up to 60 percent of their adjusted gross income. Even better, taxpayers with unrealized capital gains investments that have gained value can transfer those assets to a qualified charity without realizing the gains and incurring the tax.
Transfer Wealth to Family Members Without Incurring Estate or Gift Tax
Long term tax planning and estate planning services typically involve some degree of gift giving, as it’s an easy way to transfer wealth to beneficiaries and keep it in the family. Gifts can’t be used as a tax deduction for the current tax year, but they fit into a long-range tax planning strategy because beneficiaries don’t have to pay taxes on the gift.
To ensure you don’t reduce your lifetime gift tax or estate tax exclusion, stay within the annual gift tax limitations. In 2024, individual taxpayers can give up to $18,000 in assets to any one person. That means married couples can give up to $36,000 to each person and can give up to that amount to as many people as the taxpayer wishes without incurring tax liabilities.
Accelerate Income or Defer Expenses
Small business owners in Houston can pace their business income or expenses to stay out of a higher tax bracket or to increase deductions tied to business expenses. If you are a small business owner and have the flexibility to time income or expenses, consider whether it is advantageous to do so. In well-performing years, pushing income to next year or accelerating expenses will save on taxes. In down years, consider accelerating income and pushing expenses to the following tax year.
Schedule a Consultation with a CPA for Year-End Tax Planning Purposes
Tax planning and tax preparation is a challenge for many individual taxpayers and business owners to assume on their own. It takes considerable time and effort to devise a long-term tax planning approach, and any mistakes or miscalculations will mean a tax bill that is higher than expected.
CPAs and tax planning experts are deeply familiar with the IRS tax code and remain aware of any changes to current tax laws. We have specialized experts with an ability to focus on wealth management, and our year-end tax planning services can benefit Houston individuals and business owners alike.
