Maximizing Your Year-End Tax Benefits: Key Tips Before December 31

As the year comes to a close, many of us are looking ahead to new opportunities and resolutions. However, December 31 marks an important deadline you won’t want to overlook when it comes to maximizing your tax benefits. This is your last chance to make tax-deductible purchases, pay deductible expenses, contribute to qualifying charities, or take advantage of tax-credit-qualifying tuition payments for 2024.

To help you make the most of these opportunities, we’ve outlined some key strategies below. Additionally, we’ve included an insightful video about whether prepaying college tuition is a smart move for your family. Make sure to read through and watch the video to set yourself up for financial success in the coming year.

Take Advantage of Tax-Deductible Purchases and Expenses

Before the clock strikes midnight on December 31, consider whether there are any outstanding deductible expenses you can pay. Common examples include:

• Medical Expenses: If you have unreimbursed medical costs that exceed 7.5% of your adjusted gross income (AGI), paying those expenses before year-end could help you reach the deduction threshold.
• Business Expenses: For self-employed individuals, this could include purchasing office supplies, software, or equipment essential for your business.
• State and Local Taxes: Prepaying property taxes or state income taxes may be an option, though keep in mind the $10,000 cap on the state and local tax (SALT) deduction.

Make Charitable Contributions

Charitable giving is a meaningful way to support causes you care about while reducing your tax liability. Contributions made to qualified organizations by December 31 are deductible for the 2024 tax year. Here are some quick tips to maximize this benefit:

1. Donate Appreciated Assets: If you have stocks or other investments that have gained value, donating them can allow you to avoid capital gains taxes while claiming the full market value as a deduction.
2. Keep Records: Ensure you have proper documentation, such as receipts or acknowledgment letters, for every contribution.
3. Consider Donor-Advised Funds: These accounts let you make a large contribution in one year and distribute the funds to charities over time.

Should You Prepay College Tuition?

If you have a child in college, you’ll want to carefully evaluate whether prepaying tuition could save you money. Watch the video below for an in-depth explanation of this strategy:

Key Takeaways from the Video:

 

The American Opportunity Credit (AOC) is a valuable tax benefit for eligible families. By prepaying tuition before December 31, you may be able to claim the maximum $2,500 credit for 2024. Here’s what you need to know:

1. Qualifying Expenses: Ensure that you have already paid at least $4,000 in tuition and other qualifying expenses for the year. If you haven’t, consider prepaying the first three months of 2025 tuition to bridge the gap.
2. Income Phase-Out: The credit is subject to phase-out limits based on your modified adjusted gross income (MAGI). Check whether your income level allows you to claim this credit.
3. Eligibility Limitations: The AOC is available for a maximum of four years per student, so verify that you haven’t exhausted this benefit.

Before making any prepayments, consult with a tax professional to ensure this approach aligns with your financial situation.

Other Important Tax-Planning Tips

Here are some additional strategies to consider before year-end:

• Maximize Retirement Contributions: Contributions to traditional IRAs and 401(k)s reduce your taxable income. While the deadline for these contributions extends to April 15, acting now can help you stay ahead.
• Harvest Tax Losses: If you have investments that have declined in value, selling them before year-end can offset capital gains and reduce your taxable income.
• Review Your Withholdings: If you’ve had significant changes in income or deductions, ensure your withholding and estimated tax payments align with your expected liability to avoid underpayment penalties.

Final Thoughts

The end of the year is a busy time, but setting aside a few hours to review your tax situation can lead to significant savings. Whether it’s prepaying college tuition, making charitable contributions, or maximizing deductible expenses, taking action before December 31 is crucial.

Need assistance? Our office is here to help you navigate these strategies and optimize your tax plan for 2024. Contact us today to ensure you’re making the most of every opportunity.

JS Morlu LLC is a top-tier accounting firm based in Woodbridge, Virginia, with a team of highly experienced and qualified CPAs and business advisors. We are dedicated to providing comprehensive accounting, tax, and business advisory services to clients throughout the Washington, D.C. Metro Area and the surrounding regions. With over a decade of experience, we have cultivated a deep understanding of our clients’ needs and aspirations. We recognize that our clients seek more than just value-added accounting services; they seek a trusted partner who can guide them towards achieving their business goals and personal financial well-being.
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