Year-End Tax Moves for Pilots

With help from Allworth Airline Advisors, a handful of late-year decisions can potentially lower next year’s tax bill.

Every pilot understands that missing a checklist item can cause problems later, often when there are fewer ways to fix them.

Tax planning is no different.

Some of the most valuable ways to reduce taxes, including making contributions, realizing losses, or timing charitable gifts, often depend on acting before the year-end deadline. Once that deadline passes, those opportunities may no longer apply to the current tax year.

That is why financial advisers usually suggest beginning year-end planning in November instead of waiting until the middle of December. Custodians need time to process contributions, and paperwork does not move instantly.

With a demanding schedule and a complex pay structure, a few well-timed choices now could help reduce your tax liability while supporting your broader financial plan.

Here are some places to begin.

Make Education Savings Work Harder

If you are balancing education funding with long-term wealth planning, a 529 college savings plan can be a tax-efficient way to support both goals. Contributions can grow tax-free when used for qualified education expenses, and larger upfront contributions may make sense if you have the flexibility to do so.

Instead of contributing the annual gift tax exclusion amount each year, you may be able to front-load as much as five years’ worth at once. That means up to $95,000 per contributor, or $190,000 for a married couple. This can move a meaningful amount out of your taxable estate in a single step while helping fund a child’s future education.

It is also worth taking another look at the Child Tax Credit and dependent care benefits, even if income has previously pushed you out of eligibility. Thresholds and partial-credit rules can shift, and a strategy that did not work before may deserve a second review.

Look Beyond Your Airline Retirement Plan

If you have income sources beyond your airline paycheck, such as charter work, consulting, rental property income, or another sole proprietorship or small business, you may have additional tax-planning options. Self-employment income can open retirement-saving tools that a W-2 paycheck alone does not.

A Solo 401(k) or SEP-IRA may let you defer a significant share of that outside income, depending on eligibility and contributions to any existing retirement plan. The standard elective deferral limit is $24,500, with an additional $8,000 catch-up contribution for those age 50 and older, and a combined employer-and-employee limit of $72,000.

When coordinated with an airline-sponsored retirement plan, these accounts may create more room for tax-efficient retirement savings.

A high-deductible health plan can create a similar opportunity through a Health Savings Account (HSA). Contributions are tax-deductible, the money grows tax-free, and withdrawals for qualified medical expenses are also tax-free. That triple tax advantage is hard to match.

The HSA limits are $4,400 for individual coverage and $8,750 for family coverage, plus an extra $1,000 for those age 55 and older. If you can pay current medical expenses out of pocket and allow the HSA balance to grow, it can become a useful source of retirement healthcare funds.

Find Opportunities Inside Your Portfolio

Over the years, your aviation career may have left you with a large position in a single stock, whether through equity compensation or long-term investing. Concentrated holdings can create both upside and risk, which makes year-end a good time to review diversification, tax efficiency, and whether your portfolio still fits your long-term goals.

One possible way to address overconcentration is tax-loss harvesting. This means selling investments at a loss to offset capital gains and potentially lower your tax bill. There is no annual cap on how much capital gains you can offset, and if losses exceed gains, you can generally deduct up to $3,000 of the remaining losses against ordinary income each year. Unused losses can usually be carried forward.

To count for the current tax year, eligible transactions generally need to be completed before the year closes. Be careful with the wash-sale rule, which can disallow a loss if you buy the same or a substantially identical security within 30 days before or after the sale.

Direct indexing may offer another way to pursue tax-loss harvesting. By holding individual stocks instead of a single index fund, you may be able to harvest losses across more positions while still keeping broad market exposure.

Give Generously, Plan Strategically

If charitable giving is part of your financial plan, changes to federal tax rules make it especially important to revisit your approach.

Under the updated rules, taxpayers who itemize generally face a 0.5 percent adjusted gross income floor before charitable deductions apply, and the value of itemized deductions is limited for those in the highest tax bracket.

In practice, that means the same gift may produce a different tax result than in prior years. For that reason, strategies such as bunching several years of charitable contributions into one tax year may be worth considering before the deadline.

Giving appreciated stock directly, rather than cash, remains one of the more tax-efficient ways to support charity. Depending on your circumstances, you may be able to avoid capital gains tax on the appreciation while claiming a deduction based on fair market value, subject to applicable limits.

Other options include donor-advised funds, which let you make a contribution now, potentially claim the deduction this year, and decide later which charities receive the money. A Qualified Charitable Distribution (QCD) from an IRA can also help support charitable goals while satisfying all or part of a required minimum distribution, if applicable, once you are 70½ or older.

Stay Ahead of Retirement Tax Deadlines

For airline pilots, retirement includes a deadline many other professionals do not face: mandatory retirement at age 65. That built-in transition from airline compensation to retirement income brings a new set of tax issues and opportunities, especially for those with significant retirement savings.

Required minimum distributions, which generally begin at age 73 or 75 depending on birth year, are an important year-end item. If you are subject to RMDs, making sure the required amount has been withdrawn before year-end can help you avoid penalties and manage your annual tax liability. Some first-time distributions may qualify for a later deadline, but checking the rules ahead of time can help prevent surprises.

In the years between mandatory retirement and the start of RMDs, there is often a useful Roth conversion window. You will owe taxes on the amount converted, but the move can reduce future RMDs and create a source of tax-free retirement income. Because conversions generally need to be completed by year-end to count for the current tax year, it is worth reviewing the opportunity before it closes.

Coordinating these decisions with airline retirement benefits, Social Security, and other income sources can help you better manage future tax exposure while preserving flexibility throughout retirement.

Bringing It All Together

Your financial priorities will change over the course of your flying career. Whether you are supporting a growing family or nearing retirement with concentrated investments and charitable goals, your tax strategy should change with you.

What does not change is that many year-end planning opportunities disappear once the calendar turns. Acting early can help you capture those benefits while keeping your long-term goals in view.

That is where Allworth Airline Advisors can help. Their airline-focused advisers understand the complexities of airline compensation, retirement benefits, and the financial decisions that come with the profession. Supported by an in-house team covering investments, tax planning, estate planning, and retirement strategy, they offer tailored guidance to help coordinate those moving parts into a comprehensive financial plan aligned with long-term goals.

To learn how Allworth Airline Advisors can help you make the most of year-end planning opportunities, call 800-321-9123 or visit AllworthAirline.com.