Money Matters

Year-end financial planning strategies

By Joseph Mansoor

As the year ends, it’s an ideal time to review your financial standing and establish a proactive plan for 2025. Whether you’re an individual investor, a retiree, or a business owner, effective year-end financial planning can help you optimize current opportunities, minimize taxes, and set the groundwork for future growth. Below are key strategies to consider as you wrap up the year.

Review Your Benefits Package

One of the simplest yet most overlooked opportunities is a thorough review of your benefits package. Many benefits, such as company match programs or tax-saving options, are underutilized but can significantly enhance your financial well-being.

For Employees: Look for hidden gems in your employer’s package—such as Health Savings Accounts (HSAs), which offer a triple tax advantage: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified expenses are tax-free.

For Business Owners: Offering benefits to your employees is likely your biggest expense after payroll. Regularly review your offerings to ensure they align with your organizational goals. An effective benefits program can be a powerful tool for attracting and retaining talent, making it crucial to evaluate if the dollars you’re spending are truly adding value.

401(k) Contributions: If your company offers a match, contribute at least enough to get the full match. This is essentially free money that accelerates your retirement savings.

Roth IRA Contributions: High-income earners might feel excluded from contributing directly, but strategies like the Backdoor Roth or Mega Backdoor Roth allow contributions of up to $69,000 annually, regardless of income limits.

Optimize Your Tax Strategy

With potential changes to federal tax laws in the coming years, year-end tax planning is more crucial than ever. Proactively managing your tax situation can lead to significant savings.

Tax-Loss Harvesting: Selling investments at a loss to offset capital gains can reduce your taxable income. If you anticipate high capital gains in the future, these losses can be carried forward to offset gains in upcoming years.

Roth Conversions: Shifting assets from traditional IRAs to Roth IRAs is a smart move during low-income years, as it locks in a lower tax rate. Although you’ll pay taxes on the converted amount now, future withdrawals will be tax-free.

Qualified Charitable Distributions: If you are over 70½, consider using your Required Minimum Distribution (RMD) for charitable donations. You can direct up to $105,000 from your IRA to charity, satisfying the RMD requirement without increasing taxable income.

Pro Tip for Business Owners:

Schedule a year-end meeting with your CPA to review 2024 results, run a preliminary tax return, plan for 2025, and ensure compliance with the Corporate Transparency Act. This proactive approach helps optimize your tax strategy and positions your business for success in the coming year.

Leverage Lifetime Gifting

The current gift and estate tax exemption stands at $13.61 million per person but will decrease significantly in 2026. Now is the time to consider lifetime gifting to reduce the size of your taxable estate.

Annual Gift Tax Exclusion: You can gift up to $18,000 per person annually ($36,000 for married couples) without affecting your lifetime exemption.

Medical and Educational Expenses: Payments made directly to medical or educational institutions on behalf of another person don’t count towards annual or lifetime gift limits, making them an effective way to transfer wealth.

Gifts to Irrevocable Trusts: Consider gifting to irrevocable trusts to provide for future generations while protecting your assets from creditors and potentially reducing estate taxes.

Charitable Giving

Charitable giving not only supports causes important to you but can also reduce your tax liability. Utilizing tax-efficient strategies can amplify your impact while maximizing tax benefits.

Donor-Advised Funds: Contribute assets to a charitable fund, receive an immediate tax deduction, and decide on grants over time. This is ideal for those who want to simplify their giving while maximizing impact.

Gifting Appreciated Stock: By gifting appreciated stock, you can avoid capital gains taxes while claiming a charitable deduction for the fair market value, increasing the value of your donation.

Succession Planning

With the lifetime estate tax exemption set to be cut nearly in half by 2026, it’s essential to review your estate plans now. Consider strategies like setting up irrevocable trusts or restructuring ownership interests to reduce estate tax exposure.

Buy-Sell Agreements: Ensure buy-sell agreements and ownership structures are aligned with your long-term goals. Proper structuring can help facilitate a smooth transition and avoid unnecessary taxes or disputes.

Prepare for a Smooth Tax Filing Season

Organizing your records and understanding your upcoming tax obligations can prevent headaches during tax season. Consider running a preliminary tax return to identify potential issues and opportunities.

Large Financial Transactions: If you expect a significant capital gain or plan to make a substantial gift, consult your advisor to manage tax implications effectively.

Charitable Contributions: Consolidating or accelerating charitable donations can help manage your tax bracket, especially if you’re expecting large gains or increased income next year.

Final Thoughts

Year-end financial planning is more than just analyzing your annual investment returns—it’s about implementing proactive strategies that set you up for long-term success. From tax optimization to strategic investment planning and charitable giving, partnering with a team of trusted professionals ensures every component of your financial plan is addressed.

Working closely with your advisors, CPAs, and attorneys allows you to take advantage of opportunities, minimize taxes, and streamline your approach for a successful 2025 and beyond. Maximize this planning season by leveraging the expertise of your dedicated advisory team!

Joseph Mansoor is a Managing Partner and Director of Wealth Management for Spartan Wealth Management in Birmingham Michigan. Contact: joseph.mansoor@spartanwealth.com.

Disclaimer: This article is intended for informational purposes only and does not constitute financial advice or a recommendation to buy or sell any financial instruments. Readers should consult with a qualified financial advisor before making any financial decisions. Past performance is not indicative of future results.