Year-End Tax Planning Items to Check Off Before the Holidays

I’m not sure about your family, but when October ends, my family immediately starts turning attention toward the rush of the holiday season. Between my immediate and close extended family, we have birthday celebrations every weekend from the end of October until mid-December. Add in Thanksgiving and Christmas, and it’s very easy to feel a bit overwhelmed and see some items fall through the cracks.

It is important, however, to not miss some other important deadlines during this holiday rush. Amidst the busy planning of festive gatherings and gift shopping, let’s review a few year-end tax planning items so that they are not forgotten.

1. Indiana Property Tax Deadline (11/10/2023)

First and foremost, if you own property in Indiana, you should be aware that the Indiana Property Tax deadline is rapidly approaching on November 10, 2023. If you're reading this in early November, that means you have until this Friday to ensure your property tax payments are up to date. Failing to meet this deadline could result in penalties and additional fees, so prioritize getting your payments in order.

If you have a mortgage with an Escrow account, this should be taken care of for you, but I’ve been burnt by that in the past. Just a friendly reminder to double-check.  

2. Increased Indiana 529 Tax Credit (12/31/2023)

One development in Indiana's tax landscape that has not seemed to get much coverage is the increased tax credit on contributions to 529 accounts. At the beginning of the year, Indiana raised the threshold of 529 contributions that it will pay the 20% state tax credit on. 

The tax credit is now on the first $7,500 of contributions, up from the first $5,000 of contributions. This means you can contribute $7,500 and receive a $1,500 credit on your Indiana state tax return. It's a fantastic opportunity to reduce your state tax liability while also investing in your kids’ (or your own) future education.

3. Maximize Your HSA Contributions (4/15/2024)

For individuals with Health Savings Accounts (HSAs), it's important to ensure that you are on track to make the most of your contributions. The maximum contribution limits for 2023 are $3,850 for individuals with single coverage and $7,750 for those with family coverage.

If you're over the age of 55, you're eligible for a catch-up contribution of an additional $1,000.

Remember, if your employer contributes to the HSA on your behalf, that counts towards the maximum allowable contribution.  And if it sounds like I have touted the benefits of HSA accounts before, you would be correct (I love them).

4. Use Your FSA Funds (mostly 12/31/2023)

Flexible Spending Accounts (FSAs) are a great way to set aside pre-tax dollars for both medical and dependent care expenses. However, it's crucial to check your FSA plan document and understand the rules regarding year-end balances.

Some Medical FSA plans allow you to carry over a balance of up to $610 to be used by March 15th of the following year; however, many require funds to be used by the 12/31 calendar year-end. Don't let your hard-earned FSA funds go to waste. Make sure to utilize them wisely before the year ends.

5. Charitable Contributions (12/31/2023)

If you're considering making charitable contributions, make sure that you do so before year-end. Checks need to be post-marked by 12/31. 

For some, donating appreciated securities is a great way to get the tax benefit, while also not having to pay capital gains tax on the appreciation. For others, the best bet is to donate funds directly out of an IRA. You won’t see the tax deduction show up on your Itemized Deductions, but it still benefits you by getting funds out of a pre-tax account and not recognizing that income. 

Some custodians, Schwab included, have lengthier processing times for transactions around year-end as some transactions have a cutoff of mid-December to guarantee they get processed. Make sure to connect with your financial planner on timing and the best method to donate to charity by mid-December at the latest to ensure that you are not running into the deadline.

6. Roth Conversions (12/31/2023)

There are times when tax planning is less about minimizing taxes in the current year, and more about utilizing lower-income years to generate income at low tax rates when those dollars would be taxed at a higher rate later in retirement. 

One tool that does this particularly well is Roth Conversions, where we generate taxable income when transferring funds from a pre-tax IRA to a tax-free Roth IRA. This strategy can make sense if you have a low-income tax year, and can put some funds into an account where the growth will not be taxed in the future.

There are lots of variables to consider before processing a Roth Conversion, so make sure to talk to your financial planner and tax professional before doing so.  

As we go into the holiday season, we hope that you have many warm moments with family and friends.  Hopefully, by putting a few action items into place, we can reduce the cold sting that taxes often have in our daily financial matters. Be sure to reach out to your Market Street advisor if you want to talk through any of these items, or other potential year-end tax planning items.