Tax Season Prep: Planning Before the Deadline
As the April 15th tax filing deadline approaches, March is the ideal time to revisit your tax strategy, especially for families with trusts or more complex financial situations. By proactively addressing key tax areas, you can potentially reduce your tax liability and better position yourself for future financial success. Here are five essential tax strategies to consider this season:
1. Maximize Last-Minute Contributions
One of the most effective ways to reduce taxable income is to make the most of last-minute contributions. If eligible, consider funding Individual Retirement Accounts (IRAs), Roth IRAs, or Health Savings Accounts (HSAs) for the 2024 tax year before the April 15th filing deadline. These contributions not only provide potential tax deductions but also allow your investments to grow tax-free or tax-deferred. For high-net-worth families, maximizing these contributions can be a valuable tool in reducing overall tax exposure while enhancing long-term financial growth.
2. Review Trust Distributions
For those managing irrevocable trusts, understanding the tax implications of distributions is crucial. Trust distributions typically shift the tax burden from the trust itself to the beneficiaries, who may be subject to lower tax rates. By ensuring that all 2024 trust distributions are accurately reflected and coordinated with your tax filings, you can avoid unexpected tax liabilities and maintain compliance with IRS regulations. Working closely with your tax advisor can help optimize the distribution strategy and reduce overall tax burdens for both the trust and its beneficiaries.
3. Plan for Estimated Tax Payments
If you’ve received income from trusts, estates, or other non-wage sources, such as rental properties or investment gains, it’s essential to review your estimated tax payments for 2025. The IRS requires quarterly payments for such income streams, and underpayment penalties may apply if you fall behind. Collaborating with your CPA to accurately calculate and schedule these payments can help you avoid costly penalties and stay on track with your tax obligations.
4. Optimize Charitable Giving
Looking ahead to 2025, evaluating your charitable giving strategy can yield significant tax advantages. Donating to qualified charities or contributing to donor-advised funds (DAFs) allows you to claim deductions while supporting causes you care about. For those with larger estates or high-income levels, charitable giving can also be an effective tool for reducing estate taxes and aligning your philanthropic goals with your broader financial plan. Consider consulting with your financial advisor to explore strategies like bunching donations or gifting appreciated assets to maximize tax savings.
5. Assess All Income Sources
Major financial events, such as realizing capital gains, exercising stock options, or receiving K-1 income from partnerships, can have a significant impact on your overall tax liability. By assessing how these income streams affect your tax situation, you can make informed decisions to minimize your tax burden. For example, a Roth conversion may be advantageous if you anticipate being in a higher tax bracket in the future. Proactively managing these income sources can help you avoid surprises at tax time and create a more tax-efficient long-term strategy.
Final Thoughts
Tax planning is not a one-time event but an ongoing process that requires careful attention and strategic action. By addressing these key areas before the tax deadline, you can potentially reduce your tax liability and better position yourself for future financial success. Reach out to your Carnegie advisor to discuss how integrating your tax strategy with your comprehensive financial plan can help you achieve your financial goals.
This commentary is for informational and educational purposes only. Opinions are subject to change. Please consult with tax, legal, and financial advisors, as your circumstances may be unique. Some laws and interpretations are subject to change.
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