Year End Tax Planning Strategies to Consider

As the year draws to a close, now is the perfect time to review your tax strategy and consider ways to reduce your 2024 tax liability. With several tax provisions set to expire at the end of 2025 and a new administration on the horizon, there’s added urgency for taxpayers to take action.

1. Bunching Itemized Deductions

For 2024, the standard deduction amounts are:

·         $29,200 for married couples filing jointly

·         $14,600 for single filers

·         $21,900 for heads of households

If your itemized deductions are close to, but don’t exceed, the standard deduction, "bunching" is a strategy you can use. This involves accelerating or delaying certain deductions to push your total itemized deductions above the standard deduction threshold in a given year.

For example, if you have significant medical or dental expenses, they are deductible only if they exceed 7.5% of your adjusted gross income (AGI). If you’re planning a medical procedure that will be expensive and mostly out-of-pocket, you may want to schedule it before the year’s end to maximize the deduction.

2. Making Charitable Contributions

Charitable donations are another way to reduce your taxable income. Donating appreciated assets like stocks, bonds, or real estate not only avoids capital gains tax on the appreciation but may also help you sidestep the Net Investment Income Tax (NIIT).

For 2024, taxpayers can contribute up to $105,000 (adjusted annually for inflation) to qualified charities, which also counts as a required minimum distribution (RMD) from an IRA.

3. Leveraging Maximum Contribution Limits

Maximizing your contributions to retirement and healthcare accounts before the end of the year not only reduces your taxable income but also sets you up for long-term financial growth. The contribution limits for 2024 are as follows:

·         401(k) plans: $23,000, or $30,500 if you are 50 or older

·         Traditional IRAs: $7,000, or $8,000 if you are 50 or older

·         Health Savings Accounts (HSAs): $4,150 for individual coverage and $8,300 for family coverage, plus an additional $1,000 catch-up contribution for those 55 or older

4. Harvesting Losses

If you’ve made gains in the stock market but also have investments that are down in value, consider tax-loss harvesting. Selling investments that are currently worth less than your purchase price can offset capital gains from other investments, reducing your taxable income. Losses exceeding your capital gains can offset up to $3,000 in ordinary income, with any remaining losses carried forward to future years.

Be mindful of the wash sale rule, which prohibits you from claiming a loss if you buy a "substantially similar" investment within 30 days before or after the sale

As we approach the end of 2024, now is the time to evaluate your tax strategy and take advantage of these opportunities to minimize your tax liability. Whether it’s making the most of charitable donations, contributing to retirement accounts, or converting IRAs, there are numerous ways to save on taxes before year-end. Please contact us should you have questions about tax planning strategies.