As 2024 winds down, the window to implement effective tax-saving strategies is closing. Proactive planning can help reduce your tax bill, maximize deductions, and set you up for financial success in the years ahead. With potential tax increases looming after 2025 due to expiring provisions of the Tax Cuts and Jobs Act, this is the time to make the most of available tax breaks.
Below are 12 essential strategies to consider before December 31, 2024, to minimize your 2024 tax burden.
1. Maximize Contributions to Tax-Advantaged Accounts
Retirement and health accounts offer significant tax benefits. Here’s what you need to know:
- 401(k) and 403(b): Contribute up to $23,000 for 2024. If you’re 50 or older, you can add a $7,500 catch-up contribution. Contributions reduce taxable income dollar-for-dollar.
- IRAs: While you have until April 15, 2025, to contribute to an IRA for the 2024 tax year, consider funding these accounts early to enjoy tax-deferred growth.
- Health Savings Accounts (HSAs): If you have a high-deductible health plan, contribute up to $4,150 (self-only) or $8,300 (family). HSA contributions lower your taxable income, and withdrawals for qualified medical expenses are tax-free.
Pro Tip: HSA funds roll over year to year, making them a powerful tool for future healthcare costs.
2. Harvest Tax Losses
Tax-loss harvesting allows you to offset investment gains with losses, potentially reducing your tax liability.
- Sell investments at a loss and replace them with similar (but not identical) assets to maintain your portfolio balance.
- Use up to $3,000 of losses to offset ordinary income annually. Unused losses can carry forward indefinitely.
- Cryptocurrency Opportunity: Unlike securities, cryptocurrencies are not subject to wash-sale rules, allowing immediate reinvestment after a loss sale.
Be mindful of wash-sale rules for securities and consult a tax professional to navigate complexities.
3. Consider a Roth IRA Conversion
With tax rates expected to rise in 2026, converting a traditional IRA to a Roth IRA now could save you money in the long term.
- Pay taxes on the converted amount now. Future withdrawals, including earnings, will be tax-free.
- Roth IRAs are not subject to required minimum distributions (RMDs), offering additional flexibility.
Evaluate your current tax bracket and consult with a financial advisor to determine if a Roth conversion aligns with your goals.
4. Itemize Deductions Where Possible
For 2024, the standard deduction is $29,200 for married couples and $14,600 for single filers. Itemizing can make sense if your deductions exceed these amounts.
- Deductible expenses include medical costs exceeding 7.5% of AGI, home mortgage interest, state and local taxes, and charitable contributions.
- Accelerate expenses such as medical treatments or property taxes before year-end to surpass deduction thresholds.
5. Save on Education Costs
Take advantage of the American Opportunity Tax Credit (AOTC) or 529 plans to offset education expenses:
- The AOTC offers up to $2,500 per eligible student for qualified expenses. Prepay 2025 tuition in 2024 to maximize this credit.
- Consider state tax deductions for contributions to 529 plans. These plans also allow substantial tax-free gifting for education, reducing estate tax exposure.
6. Defer Income to Lower Your 2024 Taxable Income
If you’re self-employed or have flexible income, consider deferring some of it until 2025 to reduce your current taxable income.
- For example, delay billing clients or postpone project completions until January 2025.
- Consult your accountant to ensure this aligns with your overall financial strategy.
7. Bunch Charitable Contributions
Instead of donating smaller amounts annually, concentrate contributions in one year to maximize deductions.
- Use a Donor-Advised Fund (DAF) to claim the deduction in 2024 and distribute donations over subsequent years.
- For itemizers, this strategy can help exceed the standard deduction threshold.
8. Donate Appreciated Assets
Donating appreciated securities held for over a year can provide a double tax benefit:
- Deduct the asset’s fair market value and avoid capital gains tax.
- Donations are subject to a 30% AGI limit, but excess amounts can be carried forward for up to five years.
9. Deduct Cash and Property Donations
Cash and property donations are deductible up to 60% of your AGI for itemizers.
- Proper valuation and documentation are required for property donations. For example, donate furniture or electronics to a local charity and deduct the fair market value.
10. Make Annual Gifts to Loved Ones
The annual gift tax exclusion for 2024 allows you to gift up to $18,000 per recipient tax-free.
- Couples can gift $36,000 per recipient, doubling the exclusion.
- These gifts reduce your taxable estate without triggering federal gift taxes.
11. Take Required Minimum Distributions (RMDs)
If you’re 73 or older, ensure you meet your RMD requirements by December 31, 2024. Missing the deadline incurs a 25% penalty (reduced to 10% if corrected within two years).
- First-time RMD takers have until April 1, 2025, but taking two RMDs in the same year could increase taxable income.
- Consider Qualified Charitable Distributions (QCDs): Donate up to $105,000 from your IRA directly to charity to satisfy RMD requirements and avoid taxable income.
12. Plan Ahead for 2025
With inflation adjustments to tax brackets coming in 2025, more of your income may remain in lower brackets. Still, preparing for higher tax rates after 2025 is prudent.
- Explore additional Roth conversions.
- Revisit estate and gifting strategies to lock in current thresholds.
Flexibility in your tax strategy ensures you’re prepared for changes to tax laws and financial circumstances.
Final Thoughts
Every taxpayer’s situation is unique, and these strategies should be tailored to your specific financial picture. By taking action before December 31, 2024, you can potentially save thousands of dollars, reduce your taxable income, and position yourself for long-term financial success.
Collaborate with a tax advisor or financial professional to implement these tips effectively. With thoughtful planning, you can keep more of what you earn and navigate 2024’s tax landscape with confidence.
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