As the year draws to a close, the time is appropriate to explore practical strategies to improve your financial affairs for this year and the next. Here are a few critical strategies to consider as we march into 2025.
Key Year-End Planning Strategies
- Rebalancing Your Portfolio
Just like we need to take our car in occasionally to tune the engine and change the oil, our investments need regular check-ups to ensure they’re efficiently powering us to achieve our financial goals. As the year winds down, it’s a great time to take a closer look at your investment portfolio and make any needed changes. Given the performance of the markets the last several years, it is always appropriate to consider rebalancing your portfolio.
This review, or “rebalancing,” involves checking your current investments, taking profits or losses where appropriate, and reducing risks where necessary. This process can be critical in helping you manage and mitigate risks in your portfolio to keep them aligned with goals. - Tax Loss and Tax Gain Harvesting
Tax loss harvesting is an efficient strategy where investors offset their taxable gains by selling investments that have reduced in value. This approach allows investors to minimize tax liability, enhancing the overall after-tax returns. It can be particularly useful toward the year-end, providing an avenue to match and offset gains with losses to optimize tax results.
On the other hand, tax gain harvesting involves selling appreciated investments strategically to secure optimal long-term tax outcomes. This forward-thinking approach can provide significant advantages for those anticipating a higher tax bracket in years to come or those that have losses they need to offset. - FinCEN Business Ownership Information Reporting is not required at the moment due to a nationwide injunction from a Federal District Court.
The Corporate Transparency Act (CTA) requires that certain companies report beneficial ownership with FinCEN before year-end. Those that failed to comply would be subject to fines. On December 3,2024 a Federal District Court issued an injunction on the reporting requirement. For now, the reporting is not mandatory (as of December 3, 2024), but you may still enter the information on www.fincen.gov. Stay tuned for more guidance on this requirement and if you want to get ahead of it, you can click on the link provided and report the beneficial ownership of your LLCs. - Budgeting for Next Year’s Cash Flow Needs
When strategizing for your upcoming cash flow requirements, it is vital to consider your financial needs and develop a budget that aligns with the approaching year. Remember to make provisions for significant outlays such as trips, tuition expenses, or home improvements. By allocating resources for these expenses beforehand, you can ensure your financial readiness for the year ahead. It is good to share this information with your advisor to make sure they are aware of your needs and plans for 2025! - Preparing for a Potential TCJA Sunset in 2025
Simply put, the Tax Cuts and Jobs Act (TCJA) revolutionized the tax framework, introducing significant alterations relating to rates and deductions. There’s a possibility of some provisions phasing out in 2025. While the recent election’s results admittedly diminish the likelihood of this, the future is uncertain, so it is prudent to plan for the worst.
The earlier investors begin strategizing for potential tax increases or refinements, the better they can navigate the changing tax climate. It is advisable to start discussions now with a financial advisor, strategizing for any potential tax shifts that might occur with the TCJA provisions expiring and reviewing how you might be impacted. - Gifting Opportunities
By aligning your philanthropic objectives with your financial planning, you can make a positive impact to organizations and people you want to impact while still optimizing tax benefits and bolstering your overall financial strategy. Year-end planning is a great time to explore two prime opportunities to consider your philanthropy: estate planning and charitable giving.
● Planning Your Estate—One estate planning strategy involves using annual gifting thresholds to lower possible estate taxes. This approach allows individuals to reduce their taxable assets and mitigate future estate tax obligations. The beauty of this strategy is that it benefits both the giver and receiver, enabling the efficient transfer of assets to their heirs, who would otherwise be taxed.
● Giving to Charities – Other strategies, such as donating appreciated securities or using donor-advised funds (DAFs), can significantly enhance your charitable giving efforts. Donating assets that have appreciated in value supports your chosen charity and can allow you to sidestep capital gains taxes while granting you a tax deduction for the full current market value of the donation. DAFs present another attractive avenue, enabling you to receive an immediate tax deduction while spreading your contributions to chosen charities over time.
● Consider Using your IRA if you are 70 ½- It is important to evaluate the most tax efficient investments to use when giving to charitable organizations (501c3). If you are 70 ½, you may want to consider a Qualified Charitable Distribution for your giving. Plan to discuss this with your advisor in the new year.
Closing Thoughts
Simple, proactive steps today can significantly impact your financial health both now and in the future.
Year-end is the perfect time to reflect on strategies that will help you reach your goals. Tactics like rebalancing, tax loss, and tax gain harvesting, cash flow and estate planning, and aligning your philanthropic goals with financial planning can provide benefits that allow you to reach your goals creating the legacy you desire.
The team at Sound View is here to help you explore these year-end planning strategies, answer any questions, and help you address any concerns you might have. If you’d like to schedule a meeting in the new year or need further assistance this year, please don’t hesitate to contact our team. Enjoy the holiday season and spending time with family and friends.
Disclosure:
The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this commentary is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain positive risk, and there is no assurance that an investment will provide performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Information obtained from third party sources are believed to be reliable but not guaranteed. Sound View Wealth Advisors Group, LLC makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.