This year’s Tax Day has thankfully passed, with an estimated 146 million Americans completing tax filingsmarking the end of a stressful period for those managing complex financial situations or who struggle to prepare ahead of the annual deadline. The average taxpayer spends 13 hours annually preparing their tax returns, and with additional considerations such as the forthcoming expiration of the Tax Cuts and Jobs Act and the cap on the state and local tax deduction in 2025, next April could bring even more pressure and time constraints.
It may seem premature, but the key to a successful 2025 Tax Day lies in taking proactive measures now to streamline financial preparations. Although everyone’s financial circumstances vary, there are actionable steps to take throughout the year to ensure readiness come next April.
Adjust and rebalance your portfolio Given current capital market conditions, there is no room to be a passive investor. While some investment services may automate portfolio rebalancing, it is essential to manually do this whenever your asset allocation deviates more than 5% from the initial target.
Find a secure high-yield savings account Most financial experts will advise you to move your savings to a high-yield account. However, more important than shifting to a higher earning account is choosing one that is secure and compliant with government protection policies. This is especially important in times of economic uncertainty, as we saw in 2023 with numerous regional bank failuresthe consequences of which could put you and your savings at risk. Thorough research or consulting a trusted financial advisor can help you to optimize returns, while safeguarding savings.
Update contributions, donations and gift declarations Following Tax Day, it’s wise to review your estate planwhich offers a prime opportunity to declare gifts and help reduce your exposure to estate taxes. This is also a time to optimize any medical and education expenses, which are exempt from the gift tax.
For those contributing to a 401(k) through their employer, it is essential to prioritize contributions before the year’s end to maximize tax benefits, retirement savings and potential employer matching contributions, while ensuring timely processing and compliance with any deadlines set by your employer.
Lastly, as you work to fulfill any philanthropic goals throughout the year, it is important to ensure your associated tax benefit is maximized for all charitable donations. These include donating an appreciated asset, such as stock, which will facilitate the recipient to receive the full benefit of the gift while providing a charitable deduction and avoiding capital gains tax on the appreciated assets. You could also set up a Donor-Advised Fund with a public charity, which allows for a charitable contribution and receive a tax deduction in the year of the gift.
Meet with a trusted financial advisor A financial advisor is the best resource you can tap to ensure you’re fully prepared ahead of next tax season. Advisors take a holistic approach to your wealth management by helping to align your investment portfolio with long-term goals and explaining how current market conditions will impact financial decisions.
Above all, preparation for tax season will come down to assessing your unique financial situation and deciding what is feasible no tax solution is one-size-fits-all. As you look toward goals for the remainder of this year, and where you want to be financially by next Tax Day, you will thank yourself for not procrastinating and setting yourself up successboth for the remainder of 2024 and beyond.
Bryan D’Alessandro is head of advisor growth at Farther, a technology-centric wealth management firm. Copyright © 2024 BridgeTower Media. All Rights Reserved.
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