As the year winds down, it’s an opportune time to implement strategies that could reduce your tax liability for 2024.
Here are some end-of-year tax strategies to consider:
For Individuals:
Maximize Retirement Contributions:
Contribute to your 401(k), IRA, or other retirement accounts up to the allowed limits to reduce your taxable income. Remember, for 2024, these limits are:
401(k): $23,000 ($30,500 if age 50 or older)
IRA: $7,000 ($8,000 if age 50 or older)
Bunching Deductions:
If your deductions are close to the standard deduction amount, consider ‘bunching’ expenses like medical costs or charitable donations into one year to exceed the standard deduction, thus making itemizing beneficial.
Roth IRA Conversions:
If you expect your tax rate to be higher in the future, converting traditional IRA funds to a Roth IRA could be beneficial, although you’ll pay taxes on the conversion amount in the current year.
Health Savings Account (HSA) Contributions:
Contribute to an HSA if eligible. Contributions are tax-deductible, and the money can grow tax-free for medical expenses. For 2024, the limit is $4,150 for individuals and $8,300 for families.
For Business Owners:
Defer or Accelerate Income:
Depending on your financial situation, you might want to defer income into the next year or accelerate expenses into the current year to manage your tax liability effectively.
Equipment Purchases:
Purchase and place in service equipment or property by year-end to take advantage of bonus depreciation or Section 179 deductions.
401(k) and SEP IRA Contributions:
Make contributions to employees’ 401(k)s or your own SEP IRA. SEP IRAs allow contributions up to 25% of compensation or $69,000 for 2024, whichever is less.
Underpayment Penalty:
Review Withholding: Adjust your W-4 or estimated tax payments if you’ve had significant life changes or a change in income to avoid underpayment penalties.
Gift Exclusions: You can gift up to $18,000 per person in 2024 without incurring gift tax, which can be part of your estate planning strategy.
Required Minimum Distributions (RMDs): If you’re 73 or older, ensure you’ve taken your RMDs to avoid penalties. Consider using Qualified Charitable Distributions (QCDs) to satisfy RMDs without increasing taxable income.
Remember, while these strategies can be effective, tax laws are complex and subject to change. Clients may always contact the firm for a review of their current and future tax liability based on their unique situations.
Outline by Grok2 and Edited by Jason.