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9 Tax-Tips for Year-End

10/24/2022
A woman sitting at her desk with an open notebook and computer monitor with a spreadsheet open.

For most people, tax filing day comes every April. But thinking about it much earlier—before the end of the tax year—may help you put things in order before you file. Why? In some cases, you'll need to act by December 31 to meet deadlines. Review these nine year-end tax tips now to get a jump on your next tax day.

Before making any decisions, have a good idea about your income level so you can estimate your marginal tax bracket. That can help you know if it makes sense to act now or wait until next year on some decisions.

Year-End Tax Tips to Decide On Now

Make decisions for tax-time now with these year-end tips. These tips and reminders might help reduce what you owe or increase your refund.

1. Review Potential Gains and Losses

When you withdraw money from your taxable investments, you'll have either a capital gain or loss, depending on whether you made or lost money with your sale. Selling with a gain means you'll owe additional taxes on the amount over your cost basis. But you might be able to lower your tax bill if you use losses on another investment to offset your gains,¹ a strategy known as tax-loss harvesting. Talk to your tax advisor to see if this might be an option for you.

2. Note Portfolio Rebalancing Trade Dates

If you plan to rebalance your portfolio, transactions in a taxable account will trigger a gain or loss for each account. Keep in mind that the trade date of your transactions determines the year in which potential taxes will be due. Also, be aware of year-end distribution dates. Purchasing new shares prior to the ex-dividend² date means you also receive the fund's income and capital gain payments, if any.

3. Decide When to Convert a Roth

If you're considering converting part or all your Traditional IRA to a Roth IRA, you'll owe taxes on any contributions and earnings not previously taxed. You'll need to decide if you want to pay taxes on the conversion this year or postpone that until next year. To spread the taxes over multiple years, you might want to do a partial conversion.

Exchange -Traded Funds (ETFs) May be Another Tax-Saving Strategy to Consider

ETFs have grown in popularity, partly due to their tax benefits. They are generally more tax-efficient than traditional mutual funds. Both are subject to taxes on capital gains and dividends; however, the structure of ETFs tends to minimize taxes.


4. Contribute to Your Retirement Accounts

Whether you contribute in a Traditional or Roth IRA, you benefit from tax-advantaged investing. While IRAs allow you to make 2022 contributions until Tax Day, contributing earlier means more time in the market for your dollars to potentially grow. Take note: If you're eligible, you might be able to deduct Traditional IRA contributions.

5. Review Tax Withholding for RMDs

If you're over age 72 and taking required minimum distributions (RMDs), take note of the tax amount being withheld with each redemption. Adequate withholding can be especially important for avoiding underpayment if you're making quarterly tax payments. Don't forget, any RMDs not taken by December 31 could be subject to a 50% tax penalty on any RMD amount you fail to take.

6. Make 529 Plan Contributions

Unlike IRA contributions, purchases into 529 Education Savings Plans must be made by year end to take advantage of any state deductions, if applicable. Anyone—related or not—may be able to take a deduction for contributions to your student's account, depending on their state's tax laws.

7. Assess Education Expenses

If you have a student in college, you might be able to deduct education-related costs. Review your anticipated income to determine when to spend the money and take advantage of those deductions: this year or wait until next year? You may also be eligible for educational credits, such as the American Opportunity Tax Credit and the Lifetime Learning Credit.

8. Consider Charitable Donations

Donating your taxable investments presents a win-win situation for the qualified organization of your choice and you. When you donate securities in-kind, you don't pay taxes on the appreciation and you may also receive a deduction. Refer to the IRS website or talk to your tax advisor for details.

9. Keep Gifting Limits in Mind

If you're planning to reduce your estate by making gifts to family, take note of the annual exemption. For 2022, the IRS allows you to give up to $16,000 per person per year without incurring gift taxes. You can still give more than the limit per year to an individual and not incur gift tax, but you must report it and count it towards your lifetime exemption amount ($12.06 million in 2022).

Put Tax-Saving Tips to Work for Your Investment Goals

Looking ahead has its benefits. Early tax planning lets you make money-saving decisions before time runs out. And, the more money you save from taxes, the more you have to invest toward your investment goals.

Find more tax-planning help in our Tax Center.

Find More Tax-Planning Help

Long- and short-term capital gains are taxed at different rates. Long-term gains may only be offset by longer-term losses. Likewise, short-term gains may only be offset by short-term losses.

The ex-dividend date is the date on (and after) which the dividend is not owed to a new buyer of the shares.

Please consult your tax advisor for more detailed information regarding the Roth IRA or for advice regarding your individual situation.

Taxes are deferred until withdrawal if the requirements are met. A 10% penalty may be imposed for withdrawal prior to reaching age 59½.

IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.

IRA investment earnings are not taxed. Depending on the type of IRA and certain other factors, these earnings, as well as the original contributions, may be taxed at your ordinary income tax rate upon withdrawal. A 10% penalty may be imposed for early withdrawal before age 59½.

Exchange Traded Funds (ETFs) are bought and sold through exchange trading at market price (not NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV in the secondary market. Brokerage commissions will reduce returns.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.