1. Make the most of your Retirement Plan
Check if your 401(k) is maxed out. The pre-tax contribution limit for employees is $20,500.
If you change jobs during the year, make sure to review your 401(k) contributions. Avoid exceeding the contribution limits.
If you contributed less than the limit, consider making additional contributions to maximize your savings. If you contributed more than the limit, contact your company's payroll department promptly. Failure to withdraw the excess contributions may result in penalties.
Some companies offer after-tax contributions to 401(k) plans. The after-tax limit for retirement plans is $61,000.
After turning 72, you will need to take Required Minimum Distributions (RMD) based on IRS tables. Failure to withdraw the required amount may result in a 5% penalty. (Note: Roth IRAs do not have RMDs.)
Non-qualified Deferred Compensation Plans allow you to defer receiving your salary until a later date, providing a tax-deferred benefit. Some companies offer this option, along with matching contributions. Plan carefully and review the company's policy before making a decision.
2. Utilize Charitable Donations
If you prefer to make donations gradually instead of a lump sum, consider establishing a donor-advised fund. This fund allows you to invest the money and make planned donations each year, providing a tax deduction.
If you reach the age for Required Minimum Distributions (RMD) and wish to make charitable donations, consider donating directly from your IRA. This method avoids the 30% of Adjusted Gross Income (AGI) limitation.
3. Annual Gift Tax - The individual gifting limit is $16,000.
Consider using the limit for 529 plans, which allows a one-time contribution of up to five years' worth.
Note that the lifetime exclusion amount for estate tax planning will decrease to $5 million after 2025. Plan your tax and estate strategy accordingly.
4. Estimated Tax/Tax Withholding - Submitting timely estimated tax payments helps avoid penalties.
Submit estimated tax payments based on 90% of the current year's tax liability or 110% of the previous year's tax liability.
Be aware of specific regulations for state taxes. For example, California has different withholding requirements for the third quarter.
5. Equity Compensation Major IT companies often provide RSUs (Restricted Stock Units) and ESPPs (Employee Stock Purchase Plans). Review the detailed documentation provided by the company at the time of establishment.
The normal supplemental income tax rate for withholding is 22% (37% for yearly supplemental income over $1 million).
For RSU vesting, you may have three options: a) the company sells a portion of the shares to cover withholding taxes, b) the company sells all the shares and uses a portion to cover taxes, c)...
6. Kiddie Tax - If a child under 18 is your dependent and their account exceeds $2,300, their taxes will be calculated based on the parents' tax rates.
7. FSA and HSA - No FICA, Income Tax, or State Tax.
Check if your HSA is fully funded for the year. The total contribution limit for a family is $7,300.
Ensure you spend the funds in your FSA by year-end as it cannot be carried over to the next year.
8. Investment Account Tax
Check if your HSA is fully funded for the year. The total contribution limit for a family is $7,300.
Ensure you spend the funds in your FSA by year-end as it cannot be carried over to the next year.
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