As December winds down, advisors face a critical window for helping clients make smart tax decisions. This guide focuses on actions that need attention before year-end, with clear explanations you can share directly with clients.
What Needs to Happen Before December 31
Investment Moves That Can’t Wait
Investment losses from 2024’s market volatility might offer tax-saving opportunities. Clients can use these losses to offset gains or up to $3,000 of regular income. But timing matters – these moves must happen before December 31.
For clients still working, maxing out retirement contributions remains one of the most powerful year-end tax moves. In 2024, employees can contribute up to $23,000 to 401(k)s, with an extra $7,500 for those over 50. For those with access to a Health Savings Account, contribution limits are $3,850 for individuals and $7,750 for families, with an extra $1,000 for those over 55.
Charitable Giving Windows Closing Soon
For clients over 70½, Qualified Charitable Distributions (QCDs) offer a powerful tax advantage. They can transfer up to $105,000 directly from IRAs to charities in 2024, potentially reducing their taxable income while satisfying Required Minimum Distributions (RMDs).
For clients who itemize deductions, bunching multiple years of charitable gifts into 2024 might make sense. This strategy helps clear the higher standard deduction threshold ($29,200 for married filing jointly, $14,600 for singles in 2024).
Smart Moves for Different Client Types
High-Income Earners: Consider maxing out all available retirement accounts before year-end. This includes employer plans, IRAs, and HSAs. For business owners, setting up and funding a retirement plan by December 31 could significantly reduce 2024 taxes.
Retirees: Don’t forget RMDs – the penalty for missing them is steep. Those 73 and older must take distributions by December 31 (except for those who turned 73 in 2024, who have until April 1, 2025).
Looking Ahead: Why 2025 Tax Planning Starts Now
Important Changes Coming
The tax landscape is shifting as we enter 2025. The Tax Cuts and Jobs Act provisions are scheduled to sunset at the end of 2025, which could mean significant changes for many clients. While we can’t predict future tax policy, we can help clients make informed decisions about the opportunities available now.
For example, current estate tax exemptions are at historic highs – $13.61 million per individual. Clients considering large gifts or estate planning moves might benefit from acting while these higher limits remain in place. Married couples can potentially transfer up to $27.22 million without triggering federal estate tax.
Year-End Conversations That Matter
When meeting with clients this month, focus on these key areas:
Income Timing Decisions: For clients with flexibility in their income, consider whether taking additional income in 2024 makes sense. This might include:
- Accelerating bonuses
- Taking retirement account distribautions
- Realizing investment gains
- Converting traditional IRAs to Roth IRAs
The decision often depends on whether they expect to be in a higher or lower tax bracket next year. With potential rate changes coming in 2026, this conversation becomes even more important.
Business Owner Planning: Business owners have several year-end opportunities to consider. Purchasing needed equipment before December 31 could provide immediate tax benefits through depreciation deductions. Additionally, setting up a qualified retirement plan by year-end opens up significant tax-saving opportunities.
Working With Other Professionals
While advisors guide the overall financial strategy, coordinating with tax professionals becomes crucial in December. Here’s how to make these partnerships work effectively:
Start by asking clients to share their latest tax returns and any recent communications from their CPAs. This helps identify opportunities like unused losses or charitable deduction capacity. Then, encourage a three-way conversation with the tax preparer to confirm specific action items before year-end.
Making Tax Planning Work: A Practical Guide
How to Explain Complex Concepts to Clients
When discussing tax planning with clients, use real numbers and clear examples. Instead of talking about “tax-loss harvesting,” try this approach: “If you have investments that have lost value this year, we might be able to use those losses to reduce your taxes by up to $3,000 – but we need to act before December 31.“
For charitable giving discussions, frame the conversation around their goals: “If you’re planning to support your favorite charities in the next couple of years, doing it all in 2024 might save you more on taxes than spreading it out.”
Timeline for Year-End Decisions
Don’t wait until the last week of December. Many transactions take time to process, especially:
- Investment trades need to settle
- Charitable gifts need to be documented
- Retirement plan contributions need to clear
- Required distributions need to process
A good rule of thumb: aim to complete most year-end tax moves by December 20 to avoid last-minute complications.
Common Questions from Clients
“Should I wait until next year?”
Generally, if you know you need to make a tax-advantaged move and have the funds available, acting sooner makes sense. Waiting until 2025 means waiting a full year for any tax benefits, and some opportunities (like tax-loss harvesting) might no longer be available.
“What if I already took my RMD?”
For clients over 73 who have already taken their Required Minimum Distribution but want to make charitable gifts, they can still benefit from other charitable giving strategies. While they can’t undo the RMD, they can plan better for next year’s distribution.
“How do I know if these strategies are right for me?”
Every client’s situation is unique. The key is looking at their complete financial picture, including:
- Current and expected future income
- Investment gains and losses
- Charitable giving goals
- Family wealth transfer plans
- Business ownership considerations
Taking Action Now
Year-end tax planning opens doors to deeper client relationships and demonstrates your value as an advisor. Kapitalwise helps advisors:
- Create educational content that explains complex concepts simply
- Find leads who fit their firm
- Convert tax discussions into comprehensive planning relationships
Ready to enhance your tax planning conversations? Schedule a consultation with Kapitalwise to learn how our platform helps advisors deliver more value to clients while growing their practice.
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To learn more or schedule a complimentary consultation, schedule a virtual call via Zoom or contact us at +1.862.263.0788. We look forward to partnering with you on your journey to sustainable growth and success.
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