As 2024 draws to a close, now is the ideal time to take a closer look at tax-saving strategies. Year-end tax planning can help individuals and businesses reduce tax liabilities and boost financial potential. Here, we outline essential tax planning tips to help you save before 2024 ends. With proactive strategies, you can maximize deductions, avoid penalties, and make the most of every tax-saving opportunity.
1. Don’t Miss Your Required Minimum Distributions (RMDs)
This tax-saving step is especially important for individuals who recently turned 73, as you’re now required to start taking RMDs annually. Check your retirement account balances and ensure you’ve met your RMD requirement for 2024.
2. Maximize Contributions to Retirement Accounts
Contributing to your retirement accounts, such as an IRA or 401(k), offers a two-fold benefit: it boosts your retirement savings while also potentially reducing your taxable income. For 2024, the contribution limits are as follows:
- Traditional and Roth IRAs: You can contribute up to $6,500 (or $7,500 if you’re age 50 or older).
- 401(k) Plans: The contribution limit is $22,500 (or $30,000 if you’re age 50 or older).
By maximizing your retirement contributions, you’ll reduce your taxable income, lowering the amount you owe come tax time. If you haven’t yet reached the annual limit, consider making additional contributions before December 31.
3. Engage in Tax-Loss Harvesting
Tax-loss harvesting is a savvy strategy that can help offset gains in your portfolio. If you have investments that have underperformed this year, consider selling them to realize a loss. This loss can be used to offset taxable gains, reducing your overall tax liability.
How Tax-Loss Harvesting Works:
- Offset Capital Gains: The losses from underperforming investments can directly offset capital gains, which means you’ll pay less tax on your investment gains.
- Offset Ordinary Income: If your losses exceed your gains, you can use up to $3,000 of net capital loss to offset ordinary income.
This strategy can be particularly effective in years with market fluctuations, as it helps to “harvest” losses in a way that ultimately reduces the taxes you owe.
4. Review Paycheck Withholdings and Estimated Tax Payments
Year-end is an excellent time to ensure your tax withholdings and estimated payments align with your income. If you’ve had changes in income, deductions, or credits this year, adjusting your withholdings can help avoid underpayment penalties.
To Do:
- Review recent pay stubs to see if your tax withholdings are on track.
- Check estimated tax payments made throughout the year, especially if you’re self-employed or have significant side income.
Making adjustments now, if needed, can prevent surprises when filing your tax return.
5. Maximize Itemized Deductions Before Year-End
If you itemize deductions, consider timing certain expenses strategically to maximize your tax benefits. Some key deductions to consider include:
Medical Expenses
If your medical expenses exceed 7.5% of your adjusted gross income (AGI), you can deduct the amount that exceeds this threshold. If you have outstanding medical bills, pay them before year-end to maximize your medical expense deduction.
Property Taxes
Consider prepaying the second installment of your property taxes, typically due the following year. This can help increase your deductible expenses for 2024, especially if you anticipate lower expenses next year or expect changes in your tax situation.
Contact Our Office for Tailored Year-End Tax Planning
Effective tax planning requires attention to detail and strategic moves. With the right year-end strategies, you can significantly reduce your tax burden and maximize your financial savings. If you’re looking for professional guidance, our office is here to help. Our team offers customized tax planning services, helping individuals and businesses make the most of tax-saving opportunities.
Don’t miss out on year-end tax savings! Contact us today to schedule a consultation, and we’ll help you build a tax strategy that suits your unique financial situation.
