Tax Planning for the Upcoming Year: Insights from Kristin Afelumo
As the calendar year draws to a close, individuals and businesses alike start to pivot their focus toward the upcoming tax season. Effective tax planning is not just about filing deadlines; it’s about strategically positioning oneself to minimize tax liabilities and maximize savings. Financial expert Kristin Afelumo from Her Planning shares her insights on the essential steps to consider as we approach tax planning season.
Tax Planning Season is Upon Us
Kristin Afelumo stresses that now is the time to take action. "This is tax planning season, officially, and even I will be reaching out to my tax accountant, maybe this afternoon, and saying, ‘Hey, what do my taxes look like? What am I going to owe by the end of the year? And should I put some money aside in tax-deductible accounts to defer paying some taxes till later, or not at all?’"
This proactive stance sets the stage for strategic financial decisions that can significantly affect your tax posture. By engaging with your tax accountant early, you can make informed decisions that may lead to financial benefits.
Maximizing Retirement Contributions
One of the most effective tax-saving strategies you can implement is maximizing your retirement contributions. Afelumo highlights the importance of not just contributing to get the employer match but actually maximizing the limits allowed by retirement plans.
“For the current year, if you’re under 50, you can contribute up to $7,000 to an IRA,” she explains. “And if you’re 50 or older, you can add another $1,000 as a catch-up contribution. If you have a 401(k), the contribution limit is even higher—up to $23,000. Business owners have even more opportunities to save.”
Maximizing these contributions not only reduces your taxable income for the year but also helps you build a robust retirement fund.
Utilizing Donor-Advised Funds for Charitable Giving
For those looking to incorporate charitable giving into their tax strategies, Afelumo recommends utilizing donor-advised funds (DAFs). "A donor-advised fund gives you the opportunity to put money into an investment account for a future charitable contribution,” she explains. “You still retain the ability to manage the investments and decide where the money goes, but you get to write off the contribution in your taxes for this year."
This approach allows individuals to enjoy the immediate tax benefit while planning for future charitable donations, thus maximizing both their financial and philanthropic objectives.
Super-Funding 529 Plans for Education Savings
Another strategy that Afelumo highlights is the ability to super-fund 529 plans, particularly beneficial for parents and grandparents. "If you have a large sum of money in your estate and want to gift it to your grandkids, you can super-fund a 529 plan,” she says. “This means you can make up to five years’ worth of gifts to your grandchild’s education savings plan now."
Not only does this strategy provide a significant tax advantage, but it also secures the child’s educational future, making it a win-win for families.
The Importance of Early Tax Planning
Starting your tax planning now provides the perfect opportunity to leverage various savings techniques and prepare effectively for the upcoming tax year. It can mean the difference between paying more than necessary and seizing every tax-saving opportunity available. Afelumo reminds us that staying informed and consulting with a financial advisor is crucial in making the most of your end-of-year financial decisions.
In summary, whether it’s maximizing retirement contributions, utilizing donor-advised funds for charitable giving, or super-funding educational savings plans, the steps you take now can yield significant tax advantages down the line. As you navigate through these strategies, remember that an ounce of prevention—paired with proactive planning—truly is worth a pound of cure in the world of taxes.
