ear-end can be an important time to review your personal finances before the calendar year comes to a close. For high-income households, tax planning can involve more than simply estimating how much tax you may owe.
Your income, investments, retirement accounts, charitable contributions, business interests, and major financial decisions can all affect your overall tax picture.
Waiting until tax filing season to think about these issues may leave fewer opportunities to make adjustments. By reviewing your financial situation before year-end, you may be able to identify potential tax-saving opportunities, avoid surprises, and make more informed decisions about the year ahead.
Tax laws and individual circumstances vary, so year-end planning should be based on your specific situation and current tax rules.
Here is a practical checklist to help high-income households prepare.
1. Review Your Estimated Tax Liability
Start by reviewing your current-year income and comparing it with what you have already paid through withholding and estimated tax payments.
Your income may come from several sources, including:
- Salary and bonuses
- Self-employment or business income
- Investment income
- Interest and dividends
- Capital gains
- Retirement distributions
- Rental income
- Partnership or other pass-through income
If your income has changed significantly during the year, your original tax estimates may no longer accurately reflect your final liability.
A year-end review can help identify whether additional withholding or estimated tax payments may be appropriate.
It can also help you avoid an unexpected tax bill when you file your return.
2. Review Your Investment Gains and Losses
Investment portfolios can create significant tax consequences for high-income households.
Before the end of the year, review realized and unrealized gains and losses across your taxable investment accounts.
If you have investments with losses, you may want to evaluate whether realizing certain losses could help offset eligible capital gains.
This is commonly referred to as tax-loss harvesting.
However, investment decisions should not be made solely for tax reasons.
Selling an investment can affect your overall asset allocation, diversification, investment objectives, and future growth potential. Any tax-related investment decision should therefore be considered within the context of your broader financial plan.
Look Beyond Individual Investments
A year-end investment review can also consider:
- Portfolio concentration
- Asset allocation
- Unrealized gains
- Unrealized losses
- Investment income
- Diversification
- Cash needs
- Future investment goals
The objective is to coordinate tax considerations with your long-term investment strategy rather than allowing taxes to dictate every investment decision.
3. Review Your Retirement Contributions
Retirement accounts can play an important role in both long-term financial planning and tax management.
Before year-end, review your contributions to applicable retirement accounts and determine whether you are on track to maximize available opportunities based on your circumstances and the applicable annual limits.
Depending on your employment situation, this may include reviewing:
- 401(k) contributions
- Traditional IRA contributions
- Roth IRA contributions
- SEP IRA contributions
- SIMPLE IRA contributions
- Other employer-sponsored retirement plans
High-income households may face additional considerations regarding eligibility, contribution limits, or the tax treatment of different retirement accounts.
If you own a business, retirement plan design can also become an important part of the broader financial strategy.
4. Evaluate Roth Conversion Opportunities
A Roth conversion involves moving assets from certain tax-deferred retirement accounts into a Roth account, generally creating taxable income on the amount converted.
For some households, a year-end review may be an appropriate time to evaluate whether a Roth conversion makes sense.
The decision can depend on factors such as:
- Current tax bracket
- Expected future tax rates
- Retirement timeline
- Existing traditional retirement assets
- Other taxable income
- Future required minimum distributions
- Available cash to pay the resulting tax
A Roth conversion is not automatically beneficial for every high-income household.
The potential tax cost should be evaluated against the potential long-term benefits and your broader retirement strategy.
5. Review Required Minimum Distributions
If you are subject to required minimum distribution rules, confirm that you understand your applicable deadlines and distribution requirements.
Missing an applicable distribution deadline can result in penalties.
RMDs can also affect your broader tax picture because distributions from tax-deferred retirement accounts may increase taxable income.
For households with substantial retirement assets, it can therefore be useful to consider RMDs as part of the overall income and tax strategy rather than treating them as an isolated annual requirement.
6. Consider Charitable Giving Before December 31
Charitable giving can be an important part of year-end financial planning for high-income households.
If charitable contributions are part of your financial goals, consider whether your planned donations should be completed before year-end.
Depending on your circumstances and applicable tax rules, charitable planning may involve:
- Cash donations
- Donations of appreciated securities
- Donor-advised funds
- Qualified charitable distributions for eligible individuals
- Other charitable strategies
Donating appreciated investments may have different tax implications than selling the investments first and donating the cash.
Because charitable strategies can involve both tax and investment considerations, they should be evaluated as part of your overall financial plan.
7. Review Your Personal Tax Planning Opportunities
High-income households may have more complex personal tax situations because income can come from multiple sources and may include investments, retirement accounts, business interests, and other assets.
This is where personal tax advisory services can help coordinate tax considerations with broader financial decisions.
A year-end personal tax review may include evaluating:
- Income levels
- Capital gains and losses
- Retirement contributions
- Charitable giving
- Investment income
- Retirement distributions
- Tax withholding
- Major purchases or sales
- Upcoming financial events
The objective is not simply to reduce this year’s tax bill.
Effective tax planning considers how financial decisions made today may affect your tax situation in future years.
8. Business Owners Should Coordinate Business and Personal Planning
Business owners often have financial decisions that affect both their company and their personal tax situation.
For example, a business owner’s year-end planning may involve reviewing:
- Business income
- Owner compensation
- Retirement plan contributions
- Estimated taxes
- Business deductions
- Investment income
- Distributions
- Major equipment or business purchases
- The timing of income and expenses
Business and personal finances may be closely connected, but they should not automatically be treated as the same planning problem.
Working with financial advisors for business owners can help business owners consider their personal financial goals alongside business-related decisions.
The appropriate strategy depends on the business structure, income, cash flow, tax situation, and long-term goals.
9. Review Your Investment Management Strategy
Year-end is also an opportunity to step back and look at your investment portfolio as a whole.
Instead of reviewing individual investments in isolation, consider whether your portfolio still reflects:
- Your financial goals
- Investment time horizon
- Risk tolerance
- Income requirements
- Tax considerations
- Diversification
- Liquidity needs
For high-income households, tax considerations can be particularly relevant when managing investments in taxable accounts.
An investment management advisor can help evaluate how portfolio construction, asset location, diversification, and tax considerations fit together within your broader financial strategy.
Investment decisions should remain focused on long-term objectives rather than short-term market movements or tax savings alone.
10. Review Capital Gains Before Year-End
If you are planning to sell an investment, property, business interest, or other appreciated asset, consider the potential tax consequences before completing the transaction.
A large capital gain can affect your overall tax liability and potentially interact with other aspects of your financial plan.
Before selling a highly appreciated asset, consider:
- Your cost basis
- Expected gain
- Holding period
- Other realized gains or losses
- Current-year income
- Potential future income
- Charitable giving opportunities
- Your investment objectives
Timing can matter, but tax considerations should be balanced against the investment or financial reason for selling the asset.
11. Review Your Income Timing
For individuals with some control over when income is received, year-end can be an appropriate time to evaluate the timing of certain income and expenses.
Depending on your circumstances, this may involve reviewing:
- Bonuses
- Business income
- Investment sales
- Retirement distributions
- Capital gains
- Large deductible expenses
- Charitable contributions
Income timing strategies can be complicated for high-income households, particularly when multiple income sources are involved.
Any decision to accelerate or defer income should be evaluated using current tax rules and your broader financial circumstances.
12. Check Your Tax Withholding
High-income households may experience significant changes in income during the year.
A bonus, job change, investment gain, business distribution, or other financial event can make existing withholding less accurate.
Review your federal and applicable state tax withholding before year-end.
If your withholding is significantly below what you expect to owe, you may want to discuss whether an adjustment is appropriate.
This can help reduce the likelihood of an unexpected balance due when filing your tax return.
13. Review Medicare-Related Tax Considerations
Higher-income individuals may face additional Medicare-related tax considerations depending on their income.
For example, certain income levels can affect Medicare premiums through income-related adjustments.
Investment income can also interact with the broader tax picture for higher-income taxpayers.
This is another reason why a year-end review should look beyond your salary or business income alone.
Your investment decisions, retirement distributions, and other income sources may all contribute to your overall financial picture.
14. Review Your Estate and Beneficiary Designations
Although estate planning is not strictly a year-end tax exercise, the end of the year can be a convenient time to review your estate documents and beneficiary designations.
Consider reviewing:
- Wills
- Trusts
- Retirement account beneficiaries
- Life insurance beneficiaries
- Powers of attorney
- Healthcare directives
- Joint ownership arrangements
Review these documents after major life events such as marriage, divorce, death in the family, the birth of a child, or a significant change in your financial circumstances.
Keeping beneficiary designations current can be particularly important for retirement accounts and insurance policies.
15. Review Your Financial Goals for the Coming Year
Tax planning should not happen in isolation.
Before the year ends, consider what may change financially during the next 12 months.
For example:
- Are you planning to retire?
- Are you changing jobs?
- Are you expecting a large bonus?
- Are you selling a business or property?
- Are you purchasing a home?
- Are you planning significant charitable gifts?
- Are you expecting a major inheritance?
- Are you starting or expanding a business?
- Are you expecting changes in family circumstances?
Knowing what may be coming can make it easier to identify planning opportunities before a financial transaction occurs.
A Simple Year-End Tax Planning Checklist
Use this checklist as a starting point for your year-end review:
Income
- Review total year-to-date income
- Estimate year-end income
- Review bonuses and other compensation
- Check tax withholding
- Review estimated tax payments
Investments
- Review realized gains and losses
- Evaluate potential tax-loss harvesting
- Review highly appreciated assets
- Check portfolio diversification
- Review asset allocation
Retirement
- Review retirement plan contributions
- Check applicable contribution limits
- Evaluate potential Roth conversions
- Review RMD requirements
- Consider your future retirement income needs
Charitable Giving
- Review annual charitable goals
- Consider donating appreciated securities
- Evaluate donor-advised fund contributions
- Review qualified charitable distribution opportunities if applicable
Business Owners
- Review business income and expenses
- Evaluate owner compensation
- Review retirement plan opportunities
- Consider the interaction between business and personal finances
- Identify major transactions planned for the following year
Personal Tax Planning
- Review your overall tax position
- Consider upcoming changes in income
- Review investment-related tax consequences
- Evaluate the timing of major financial transactions
- Coordinate tax planning with retirement and investment decisions
Estate Planning
- Review beneficiary designations
- Review wills and trusts
- Update documents after major life changes
- Confirm that account ownership and beneficiary designations reflect your current intentions
Don’t Wait Until Tax Filing Season
Tax preparation looks backward.
Tax planning looks forward.
By the time you are sitting down to prepare your tax return, many year-end opportunities may have already passed.
That is why high-income households may benefit from beginning their year-end review well before December 31.
The goal is not to make financial decisions simply because they create a tax deduction. Instead, tax considerations should be incorporated into decisions you are already making about investments, retirement, charitable giving, business ownership, and your long-term financial goals.
A coordinated approach can help you understand the potential tax consequences before you make major financial decisions.
Make Year-End Planning Part of Your Financial Strategy
For high-income households, tax planning is most effective when it is connected to the rest of your financial picture.
Investment management, retirement planning, charitable giving, business ownership, and personal taxes can all affect one another.
A year-end financial review can help identify areas that may deserve attention before the calendar year closes and help you enter the new year with a clearer understanding of your financial priorities.
If your income, investments, retirement accounts, or business interests have become more complex, consider reviewing your year-end strategy with a qualified financial professional and tax professional who can evaluate your individual circumstances.
Schmidt Wealth Management can help you coordinate your investment and financial planning around your broader personal goals. Contact the team to discuss your year-end planning needs.
FAQs
What is year-end tax planning?
Year-end tax planning is the process of reviewing your income, investments, retirement accounts, charitable giving, and other financial activities before December 31. The goal is to identify potential tax planning opportunities and prepare for your expected tax liability before the year ends.
Why is year-end tax planning important for high-income households?
High-income households may have multiple sources of income, including salary, bonuses, investments, retirement accounts, business interests, and other assets. Coordinating these areas before year-end can help identify potential tax consequences and opportunities that may otherwise be overlooked.
When should I start my year-end tax planning?
Ideally, begin reviewing your tax situation several months before the end of the year. Starting early gives you more time to evaluate investment gains and losses, retirement contributions, charitable giving, income timing, and other decisions that may need to be completed before December 31.
Should I review my investment portfolio before the end of the year?
Yes. A year-end portfolio review can help identify realized gains, unrealized gains and losses, concentrated positions, and opportunities to improve diversification. Tax considerations should be evaluated alongside your investment objectives rather than making investment decisions solely to reduce taxes.
What is tax-loss harvesting?
Tax-loss harvesting generally involves selling an investment that has declined in value to realize a capital loss, which may potentially be used to offset certain capital gains or other income subject to applicable tax rules. Investment decisions should consider your overall portfolio strategy and the applicable rules before taking action.
Should I consider a Roth conversion before year-end?
A Roth conversion may be worth evaluating if you have eligible tax-deferred retirement assets. The conversion generally creates taxable income, so the potential benefits should be weighed against the current tax cost, your expected future tax situation, retirement goals, and other sources of income.
What should business owners review before the end of the year?
Business owners may want to review business income, owner compensation, retirement plan contributions, estimated taxes, major purchases, distributions, and transactions planned for the following year. Business and personal financial decisions can be closely connected, making coordinated planning particularly important.
Can charitable giving help with year-end tax planning?
Charitable giving may have tax implications depending on the type of contribution and your individual circumstances. In addition to cash donations, some individuals may consider donating appreciated securities or using other charitable strategies. Contributions should be evaluated based on both charitable goals and applicable tax rules.
Should I review my retirement contributions at year-end?
Yes. Review your contributions to applicable retirement plans and compare them with the current annual limits and your financial goals. High-income households may also need to consider eligibility rules, employer contributions, and the tax treatment of different retirement accounts.
How can investment decisions affect my taxes?
Selling investments can create capital gains or losses, while dividends and interest may also contribute to taxable income. A year-end investment review can help you understand these potential tax consequences and determine whether portfolio adjustments are appropriate within your overall investment strategy.
What documents should I gather for year-end tax planning?
Useful information may include recent pay statements, investment account statements, retirement account information, records of charitable contributions, estimated tax payments, business income information, and details of major financial transactions completed or expected during the year.
Is year-end tax planning the same as preparing my tax return?
No. Tax preparation generally focuses on reporting what happened during the previous tax year. Tax planning is forward-looking and focuses on evaluating financial decisions before the year ends and considering how they may affect your current and future tax situation.
