Year-End Financial Moves to Prepare for Tax Season

As the end of the year approaches, it’s a great time to organize your finances in preparation for tax season. With a few steps, you can reduce your tax burden, get ahead of potential tax liabilities, and enter the new year with a clear picture of your financial health. Here are six steps you might consider making before December 31 to set yourself up for a smoother, more manageable tax season.

1. Maximize Retirement Contributions in Preparation for Tax Season

Contributing to retirement accounts can be one of the most effective ways to reduce your taxable income. If you haven’t yet hit the contribution limit on your 401(k), IRA, or other retirement savings accounts, now is a great time to boost your savings. For 2024, the IRS allows individuals to contribute up to $22,500 to a 401(k) plan (or $30,000 if you’re over 50), while IRA contributions max out at $6,500 ($7,500 for those 50 and older). Contributing to a traditional IRA or 401(k) account can reduce your taxable income for the year, and maximizing contributions to a Roth IRA offers future tax-free withdrawals in retirement. Learn more about Academy Bank’s CD IRAs that could be a great tax-deferred way to save at a guaranteed rate over time.

2. Review and Adjust Withholdings or Estimated Tax Payments

If you experienced any major life changes this year — such as getting married, divorced, starting a new job, or adding a new member to your family — consider adjusting your tax withholdings or estimated payments. By ensuring that you’re paying the right amount throughout the year, you can avoid an unexpected tax bill in April. Use Academy Bank’s 1040 tax calculator to estimate your taxes for 2024.

3. Take Advantage of Tax-Deferred Investments and Accounts

Certain investments and savings accounts provide tax-deferred growth, which can help reduce your taxable income and lead to long-term tax savings. For example, contributing to a Health Savings Account (HSA) if you have a high-deductible health plan allows you to set aside tax-free funds for medical expenses. In 2024, you can contribute up to $3,850 for individual coverage or $7,750 for family coverage, plus an additional $1,000 if you’re over 55. HSAs offer triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. To learn more about saving for retirement, access Academy Bank’s Retirement Plan Calculator.  

4. Consider Year-End Charitable Donations

Making charitable donations is a fantastic way to give back while also potentially reducing your taxable income. To maximize the impact, consider donating appreciated assets like stocks, which can help you avoid capital gains tax while deducting the full market value of the asset. Keep records of all donations, including receipts, especially if you donate non-cash items. Remember that the IRS requires a qualified appraisal for donated items worth more than $5,000.

5. Harvest Investment Losses to Offset Gains

Tax-loss harvesting is a strategy that involves selling investments at a loss to offset any capital gains you might have incurred. By doing this, you can reduce your overall tax liability on capital gains, and if your losses exceed your gains, you can deduct up to $3,000 against your regular income. Any losses over that amount can be carried forward to offset gains in future years. Just remember that if you want to repurchase the sold investment, you’ll need to wait at least 30 days to avoid violating the IRS “wash sale” rule.

6. Organize and Gather Essential Tax Documents

Organizing your documents now will save time and stress when tax season arrives. Start by gathering key documents like income statements (W-2s, 1099s), bank and investment statements, receipts for deductible expenses, and proof of any charitable contributions. Create a dedicated folder — physical or digital — for all your tax-related documents and consider using a tax software organizer to streamline the process. If you’ve made significant investments, sold property, or have other complex tax situations, this is also a good time to schedule a consultation with a tax professional to discuss the best filing strategy.

The Bottom Line

By tackling these financial tasks now, you’ll be ahead of the curve and better prepared to file your taxes efficiently — potentially reducing stress and increasing savings. Whether it’s maximizing contributions, giving back, or reviewing your finances, a little preparation can go a long way toward a smoother tax season. And remember, taking advantage of year-end financial moves isn’t just about lowering this year’s taxes; it’s also a step toward building a more secure financial future.

To learn more about savings, taxes, and retirement planning, try Academy Bank’s Financial Calculators.

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