End-of-Year Tax Strategies You Don't Want to Miss

In this episode of the Retire Early Retire Now podcast, host Hunter Kelly, a certified financial planner and founder of Palm Valley Wealth Management, discusses the importance of proactive tax planning before the year ends. He explains how most people mistakenly focus on taxes in April when it's too late to make significant savings. Instead, he emphasizes the need for strategies such as Roth conversions, tax loss harvesting, charitable giving, and other overlooked year-end tax plays. Hunter also provides actionable steps for implementing these strategies, highlighting the potential to save thousands of dollars. Listeners are encouraged to review their financial standing now and not wait until the last minute.

00:00 Introduction and Year-End Tax Planning Overview
00:32 Welcome to the Retire Early Retire Now Podcast
02:22 The Importance of Tax Planning vs. Tax Preparation
05:30 Roth Conversion Strategies
07:44 Smart Charitable Giving Tactics
10:47 Tax Loss Harvesting Explained
13:37 Maximizing Tax-Advantaged Accounts and Final Tips
15:29 Conclusion and How to Get Help

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Transcript

0:00

We are coming up on the end of the year, and that means one of the biggest opportunities to save money on taxes before December 31st. But here's the thing, most people wait until April to think about taxes when it's already too late. The real planning happens. Now, whether you're high income earning professional, a business owner. Or someone who wants to be more intentional with your money, this is the time to start making smart moves that can save you thousands of dollars before the calendar flips. And if this is your first time tuning in, welcome to the Retire Early Retire Now podcast. I'm Hunter Kelly, your host, certified financial planner and founder of Palm Valley Wealth Management. Every week on this show, we break down real world financial strategies that help high income earning families make smarter decisions with their money. From investing to tax planning, to designing a life you don't need to retire from. So if you're someone who values freedom, efficiency, and purpose with your finances, you're in the right place. In today's episode, we're covering year end tax plays that most people miss strategies around Roth conversions. Tax loss, harvesting, charitable giving, and a few hidden items that can make a big difference before December 31st. And before we dive in, if you've been enjoying this show or if you find today's episode helpful, take 10 seconds to leave a five star review on your favorite podcast and app, or share this with a friend. It helps the listeners find the show and support what we're building here now. I've had a few people reach out, through the text me button on the show notes, and I love it. I love the suggestions. and, just their stories about how they have been doing with their finances. and some people have reached out wanting to have a conversation with me. The best way to do that. Is through my website, Palm Valley wm.com, where you can schedule a call with me. That's the best place to reach out. I actually cannot, reply back to the text me button. so I'm gonna fix that here soon. But, if you're wanting to reach out for a conversation, go to my website, book a call, and again. My website is in the show notes, or you can just go to palm valley wm.com. But let's jump in. So the first things first, I always say tax planning is one of those areas in finance where you can create real guaranteed value, right? I can't guarantee a 12% return on a portfolio, but when you. Create strategies or you implement strategies for taxes that save, let's say a thousand dollars here or$10,000 there or what have you. That is money in your pocket. It's not a hypothetical market return, it's not a maybe outcome. It's real money, real dollars. And so this is where I think I can add value and where other financial advisors that do tax planning can add real. Hard dollar values to, to what they're doing right, to the advice that they're giving you. So the mistake that most people make is waiting until it's too late, waiting until April when it's tax filing, seizing. And tax prep is not tax planning, right? Tax planning is something that you do throughout the year. Tax prep is when you, file your taxes in the following year, in the month of April. So by then the doors are closed in April, your income has been earned, the deductions are locked in, and all you can do is record what has already happened. This is where people get confused. Tax per tax preparation and tax planning. And the difference, between the two are is huge. So tax preparation is about reporting compliance, getting your W twos, your 10 90 nines, your deductions all entered incorrectly, and filing your return. It's important, but it's reactive. I always joke that CPAs and enrolled agents that just do tax preparation are people that just live in the past. They're like the old, high, high school athlete, that is always reliving his, his glory days in high school. But tax planning is, all about shaping your future. It's planning for the future, right? So it's making intentional moves before. The tax year is over to influence what your tax picture will look like next April, next year, and hopefully even decades down the road. Tax prep asks what happened? Tax planning asks, what can I still change? And that's why this time of year matters so much. Doing some of these strategies before the end of the year will allow you to ask questions like, how much income can I realize? How much should I convert to Roth IRA? How much should I harvest the losses or how much should I give to charity while it still counts for this tax year? So tax planning isn't about loopholes, it's about timing, coordination, and intention. The difference between someone who plans now and someone who waits until April. It's not skill, it's timing, and the timing can easily worth thousands of dollars every single year. So with that foundation in place, let's walk through the four biggest year end tax plays most people overlook, starting with one of my favorites, and that is the Roth conversion window. If you ha have had a lower income year, you're in between jobs. Maybe you took a sabbatical, or you just happen to have a lower tax bracket than normal this year, this could be a chance for you to move money from your pre-tax IRAs into your Roth IRA at a discount. Here's why it matters. You pay taxes on that money now. On the money that you convert, it grows tax free forever and it will never be taxed, uh, as you pull it out. So the key here is one, how much are you willing to pay in taxes this year? Uh, and two. Where's your bracket and what makes the most sense? Right? So the key here again, how much do I want to pay in taxes and then bracket management. So for example, let's say your taxable income is going to be around$230,000. You could convert another 25 to$30,000 and still stay within the 24% tax bracket. each person, each household, each family is gonna be a little bit different on what. Bracket you want to be in based off your tolerance for the tax bill that you want to pay, and the analysis that you run, right? These are calculations and analysis that I run for just about every client, each year, because things change from me year to year basis. And when you run these analysis. it's a lot like a bell curve, right? So the more you, convert, the more fruitful it will get until. a certain point. And so we wanna make sure that we are getting in that Goldilocks zone of how much should we, convert, from the willingness to of the client to pay the taxes and then financially how much makes sense, right? On a year to year basis. So this is an analysis that you should be running, every year. And in accordance with other, tax planning strategies that you're implementing as well. And so the other thing that you can do is you can time this with charitable giving as well as we'll talk about right now. A lot of people write checks to charities in December, which is great, but they can miss opportunities to multiply their tax impact. So some other things that you can do that might be more fruitful or more efficient, in. and ways that you can give to charity from a tax standpoint. So one, you can donate, appreciate stock instead of donating cash to your favorite charity. So if you've held an investment for longer than a year, and it's gone up in value, donate this. Stock instead of selling it, you can avoid capital gains tax, and still get the deduction for the full fair market value. client, that I onboarded about a year or so ago, came to me. She had a large brokerage account and two of her holdings had. somewhere around, combined$500,000 worth of capital gains. So instead of donating cash to her favorite charity this year, we decided to, donate. dis appreciated stock so that she could avoid the capital gains, and still get the fair market value for that deduction. to add on to that, the second part of the strategy is you can use a donor advised fund, right? And so if you know that you are charitably inclined and there's a certain amount of money that you want to give every year. And you're gonna give that amount of money for let's say 10 years. So for example, if you want to give$10,000 per year, per year for the next 10 years, you can donate a hundred thousand dollars to this donor advised fund. Take that deduction. And then give that money over time. And this is, what we did with my client, with the capital gains. So she was able to avoid those capital gains, get the deduction up front, and then she's going to be able to spread out those donations over the next five or 10 years, as she, donates to her favorite charities and such. So this works especially well. If you've had a higher income year, maybe a liquidity event, which is the case of my client. She had a family business that's being sold. and this was a great pairing, not only to reduce her income, but we also did, some Roth conversions as well. So let's say you. Donate$500,000 to, the donor advised fund. You can pair that with a Roth conversion, keeping your, tax liability essentially the same. Right now. There's some nuance in there. There's some caps on how much you can, uh. Deduct from your income based off your a GI, things of that nature. So you wanna look into the nuances of these rules, but it can be a big deduction, uh, for you, uh, eliminating lots and lots of taxes. get with your CPA, get with your financial advisor, whoever does your tax planning to make sure that you're doing. these correctly. the next tax play that you should be looking for before the end of the year, is tax loss harvesting. This is one of the most underused tools out there. Here is the idea, right? So what is tax loss harvesting? You sell an investment that is t temporarily down to realize capital loss. And you use that loss to offset gains elsewhere that maybe you had during the year, or you can even reduce your income up to$3,000. And if you do not have any other gains, that would be offset by losses. you can carry those losses forward and use those against your gain or reducing your income moving forward indefinitely. So it's not about market timing, it's about tax timing. So let's say you've invested, in a stock that earlier this year or in ETF. And you realize that it's down, let's say 8%, right? you can sell this stock or the CTF, capture that loss and immediately buy something similar, but not identical. the example I use a lot is, let's say you bought Home Depot, it's down 8%. You sell Home Depot and then you immediately buy Lowe's, right? They're not the same stock, but they are, generally going to, trend the same way, right? This allows us to avoid what's called the wash shell rule, where you're going to have to wait at least 30 days to get back into that same holding, right? And so the last thing you wanna do is sell Home Depot, and then buy back in the following day. that would avoid or voyage or your loss. And, you would not be able to use that moving forward, right? And so there's ways to get around this. and tax loss harvesting isn't something that you should just look at the end of the year. This is something you should constantly look at, right? if you only looked at it the end of this year, you would have missed a great opportunity. Early in the year when tariffs were the big thing in the news, the market pulled back. You could have had easily, some opportunities to potentially tax loss harvest, to be able to use those losses maybe for some of the gains that. You could have incurred, in the later part of this year because the market has been, floating up here in the last three or four months. tax loss harvesting is something you wanna be looking out through, the entire year. And this is something I do at my firm with my custodian. and we're looking for these opportunities, all the time through the taxable brokerage accounts of our clients. keep that in mind. This is something that you should do. It does take, a trading platform and. And time and effort to do this, but it can make a huge difference on your after tax returns in your investments, versus not having that tax management at all. so play number four. these are simple, but these can make a big difference. Is overlooking adjustments or timing moves. these are, again, small but powerful moves that most people just don't think about. So one, maxing out your tax advantage accounts. So make sure that you're fully contributed to your 4 0 1 Ks IRAs, HSAs. sometimes people make adjustments early in the year. and then by end of the year, based off their income, maybe they're missing that max by a few thousand dollars. So just making sure that you are reviewing that and if it's something that you want to max out like your 401k or IRA you're doing, or adjusting those contributions to make sure that you meet that match, right? So every dollar here is either going to be tax deferred if it's a pre-taxed account. Or be tax free depending, if it's a Roth or not. So the next thing would be review your estimated payments and withholding. So if you're a business owner or 10 99, or maybe your income has just been wildly uneven this year, make sure that you have met your safe harbor thresholds to avoid underpayment penalties. so what is your safe harbor threshold? this would be 90% of your current year tax liability. Or 110% of last year's tax liability that needs to be prepaid before, Before, the end of the year, right? the last thing we wanna do is underpay this threshold. and then once we get to April, we file our taxes, we end up owing money in April. And then also owing, a small underpayment penalty or maybe even a large underpayment penalty depending on how bad you missed it. And so these are. Some small administrative things that, uh, can often be overlooked, but it can prevent, unnecessary headache in April. So let's put it all together. The key takeaway here is that taxes aren't something that just happened to you. They're something that you can plan for. Roth conversions, tax loss, harvesting, smart charitable giving. These are all tools that you can keep in your. Or these are all tools that can help you keep more of what you earn. The difference between someone who plans in November and someone who waits until April, that's usually thousands of dollars. So take a few hours this month, into December and review your income, your investments, you're giving strategies, or have your advisor do it with you. Right? there's if you smart adjustments now can compound into lifetimes of savings. I do wanna note that if you are thinking about Roth conversions in contributions to donor advised funds, things of that nature, your custodian, where you hold your investments. Often have deadlines that are earlier than December 31st because they have things that they need to do on the back end to make, these, strategies happen. So when you're processing Roth conversions or donating to donor advised funds, things of that nature, that again, they have stuff that they need to do on the back end. So oftentimes these deadlines will be the week before, the end of the year. so I try to have these done the first or second week of December so that, there's no problem or delays, with these certain type of strategies. So just make sure that you're looking out for that, as you consider rod conversions or donor advised funds contributions. so at this podcast episode, got you thinking about your own situation and you like help running these numbers. You're like, I don't even know how to run a Roth conversion analysis or what that would look like for me. Go to my website, Palm Valley wm.com, book a call. I would love to have a conversation with you about it. We can talk about your income, your raw conversion, opportunities, retirement planning, whatever that may be for you. There may be another burning question that, that keeps you up at night. Who knows? And if you're here for the first time, thanks for listening to The Retire Early Retire Now podcast. Hit that follow button on your favorite podcasting app so you don't miss future episodes And for those who have been listening for a while, thanks again. If you have not done it already, leave a five star review on Apple or Spotify. It helps. Again, new listeners find the show and helps keep growing this community. So I'm Hunter Kelly, certified financial planner and thanks for tuning in. This podcast is for educational purposes only. It is not meant to be tax, investment or financial planning advice. Please do not make decisions solely based on this podcast alone. Please seek professional help in making decisions about your own situation. I.