News & INSIGHTS

By Patrick Swift, CFP®, Partner & President of Wealth Planning at Amplius Wealth Advisors

As we approach year-end, I find this to be the best time of year for in-depth tax planning. Why? Because at this point in the year, it becomes easier to project out your full-year income, and begin to examine what changes you can make and how it will affect your tax liability. While taxpayers of all types can benefit from many of the tips in this article, I am focusing primarily on high-impact initiatives for executives of public companies. Let’s get into some strategies to optimize your tax outcomes for both the current year and the future to maximize your wealth.

Understanding Tax Planning for Executives

Executives often find themselves in the highest tax brackets, which makes strategic tax planning crucial. We often see the convergence of multiple moving parts; high cash income, complex equity awards, deferred and supplemental compensation, retirement plans, and exclusive benefits can altogether create a thorny tax situation to navigate.

Here are the 10 most important steps to take and strategies to review before year-end:

1. Project Your Taxes

At this point of the year, most of your income becomes easier to project than it was, say, 6 months ago—often bonuses have been paid out or communicated, and there are only a few pay periods remaining. Here are some of the items you’ll need to build out a projection:

• Year-to-date pay stubs
• Investment income summary (capital gains, interest, dividends, etc.)
• Equity awards exercised
• Real estate income
• Other forms of income: partnerships, 1099s, S-corps, trusts, etc.
• Charitable contributions
• Loan interest paid

2. Tax-Loss Harvesting

Review your investment holdings/positions. Any positions that are currently held at a loss, you may want to consider selling before year-end. That loss will offset any other capital gains in your portfolio for the year, and if you have no other gains to offset, you will be able to deduct the losses (up to $3,000) from your income. Any unused loss will be carried forward to future years.

Obviously, there are investment considerations in selling those positions. Luckily, we can help navigate your situation.

3. Maximizing Deductions

Since the passage of the Tax Cuts & Jobs Act of 2017, there are fewer personal deductions for taxpayers who primarily report W-2 income (non-business owners). The primary remaining mechanism by which these taxpayers have to deduct from their income are itemized deductions. The most common itemized deductions are:

• State & Local Income, Real Estate, and Personal Property Taxes (up to a limit of $10,000, sorry NJ/NY/CA residents)
• Mortgage Interest
• Charitable Contributions

Since most people have limited control over the former two, charitable contributions offer the greatest opportunity to influence deductions. Options to optimize include using a Donor-Advised Fund, gifting appreciated investments, or donating “use” property to charity.

For clients who may benefit from the tax deduction but aren’t currently inclined to give, I often suggest considering a Donor-Advised Fund, allowing them to take advantage of the deduction now with the flexibility to make future charitable contributions.

Pro Tip: The above can be combined with a “bunching” strategy in alternating years, to maximize deductions.

Qualified Charitable Distributions (QCDs): If you’re 70½ or older, use QCDs from your IRA to satisfy charitable goals and potentially reduce your taxable income.

4. Equity Award Optimization

A crucial part of maintaining a tax-smart, long-term strategy to maximize your awards, equity awards are typically a large part of an executive’s compensation package. Often, there are multiple awards with differing tax rules: RSUs, ISOs/NSOs, ESPP, etc. Primarily, for tax optimization at year-end:

• Review your exposure relative to your liquid net worth (total exposure / liquid net worth).
• Confirm black-out and trading windows.
• Consider your income this year (item #1) relative to the likelihood of changes in upcoming years.
• Consider years to retirement.
• Depending on circumstances and goals, you may want to:
  • Exercise ISOs and track your AMT exposure.
  • Sell shares at long-term capital gains rates.
  • Donate highly appreciated shares to charity.
  • Consider a “stock swap” to exercise options.
  • Prepare any “liquidity” strategies for 2025 – 10b5-1 plans, etc. 
• On the topic of AMT, if you have paid AMT in previous years as a result of exercising Incentive Stock Options (ISOs), you could have an AMT credit to claim, which can be complex to track and often requires professional assistance.

5. Maximize Your 401(k) and/or Supplemental Retirement Plans

An easy one but unfortunately often overlooked; whether you are contributing pre-tax or Roth contributions, you are maximizing tax benefits both now and in the future. Log in to your 401(k) and check where you are for the year!

6. Mega Backdoor Roth (After-Tax 401(k))

For those who have maxed out regular retirement contributions, a Mega Backdoor Roth allows high earners to contribute additional after-tax funds to a 401(k), which can later be rolled over to a Roth IRA. This strategy enables potentially significant tax-free growth if rolled into a Roth account, where distributions are also tax-free in retirement. Review your 401(k) plan’s rules, as not all plans permit this option, and consider making contributions before year-end to maximize the available space for this tax-advantaged growth.

7. Health Savings Accounts (HSAs)

In a similar vein of payroll deductions, if you are enrolled in a High Deductible Health Plan (HDHP), make sure you are taking advantage of saving to an HSA. In 2024, the limits are $4,150, and $8,300 for an individual and a family, respectively.

You can change these deductions to hit the maximum throughout the year. If you are not enrolled in a HDHP, consider enrolling in 2025 after examining your healthcare benefits. 

The Amplius Wealth team has deep expertise advising clients on employer benefits and the many advantages HSAs can provide long-term. 

8. Deferred Compensation Optimization

Within the context of employer benefits, enrollment season is often at year-end for many employers. Executives will often be offered Non-Qualified Deferred Compensation (NQDC) benefits. These are discriminatory plans that are only offered to certain (typically senior) employees. They can be powerful savings tools that allow for income to be deferred to a later date.

However, they are commonly misunderstood or misused. When enrolling in an NQDC plan for the following year, employees often must make several choices including:

• How much income/compensation to defer
• How they want their compensation to be invested
• When they want their payouts to start
• How their payout should be made (lump sum vs. annuity payments)

The latter two choices can trigger major tax problems, if not planned carefully. You may unknowingly hamstring important years of tax flexibility in the future without a well-constructed plan.

9. Estate Considerations, Gifting, & 529s

In 2024, there are more considerations in this realm than ever:

• Depending on the state in which you live, 529 contributions can sometimes be deducted on a state income tax return, so be sure to consult with an advisor on what makes the most sense for you.
• Estate and lifetime gift exemptions are very high under current law. However, the Tax Cuts & Jobs Act of 2017 (TCJA) has many provisions set to expire after 2025, barring new legislative action. The exemptions are set to potentially pare back to much lower levels.
• As such, as part of your estate plan, if you are looking to move money to beneficiaries or heirs during your lifetime, now is the time to do it. This may facilitate a far more tax-efficient distribution of your assets in the future.

10. Roth Conversions

While not a tax “savings” strategy for the current year, it is a powerful planning consideration for the future. 

A Roth conversion involves transferring funds from a traditional IRA to a Roth IRA, incurring taxes now for the benefit of future tax-free withdrawals. Consider converting in years when your income or tax bracket is lower than usual, or if you expect your income to continue to increase in the future, particularly if you may face higher tax rates.

As mentioned in tip #9, the TCJA, set to expire in 2025, could effectively act as a tax rate hike as rates repeal to their former, higher levels. As such, 2024 & 2025 could be better years to consider Roth conversions than future ones. This strategy is especially valuable if you can “fill up” your current tax bracket without pushing yourself into a higher one.

If you are at or near retirement (less than 5 years out), modeling Roth conversions in your early, low-tax retirement years could be critical to optimizing your retirement assets as well.

Integrating Tax Planning With Your Overall Financial Strategy

At Amplius Wealth Advisors, we believe effective tax planning is an integral part of your comprehensive financial strategy. Our approach goes beyond just year-end tax moves; we work with you to create a holistic plan that aligns your tax strategies with your long-term financial goals.

Take the Next Step

Are you a senior executive looking to optimize your tax strategy and align it with your overall wealth management plan? We at Amplius Wealth Advisors are uniquely positioned to navigate the challenges and maximize the opportunities you face.

Are you ready to begin your journey toward maximizing your wealth and realizing your ideal financial future? Schedule a consultation with our team to discuss how our tailored approach can help you navigate the complexities of executive compensation and tax planning.

About Patrick

Patrick Swift is Partner, President of Wealth Planning, & a wealth advisor at Amplius Wealth Advisors, a registered independent advisory firm in Blue Bell, Pennsylvania, helping successful executives, professionals, and multigenerational families solve complex decisions on how to best preserve, sustain, and transfer their wealth. Providing trusted financial guidance since 2015, Patrick’s proactive approach focuses on delivering personalized advice on investments, taxes, estate planning, and insurance, helping clients enjoy peace and confidence through a disciplined and strategic planning process. As President of Wealth Planning, Patrick oversees Amplius’s wealth management operations and emphasizes four key principles: behavioral discipline, proactive monitoring, room for error, and client action. He takes pride in building lasting relationships, providing clients with clarity and confidence as they navigate complex financial decisions.

Patrick holds a degree in finance and marketing from Drexel University as well as his CERTIFIED FINANCIAL PLANNER® certification. He currently lives in Philadelphia, is a Big Brother with Big Brothers Big Sisters of the Independence Region, and enjoys ice hockey, exercising, reading, writing, and cooking. To learn more about Patrick, connect with him on LinkedIn.

Disclaimer: The information provided in this article is for general informational purposes only and should not be considered as personalized tax advice. Tax laws and regulations are complex and subject to change. We strongly recommend consulting with a qualified tax professional or CPA for specific advice tailored to your individual situation. Amplius Wealth Advisors, LLC does not provide tax or legal advice. Please consult your tax and legal advisors regarding your personal circumstances.