As the year draws to a close, now is the perfect time to ensure your financial house is in order and to take advantage of tax-saving opportunities. With a little planning, you can reduce your tax liability for 2024 and set yourself up for a strong financial start in 2025. Here are some key strategies to consider:
- Maximize Retirement Contributions
Contributing to retirement accounts is one of the most effective ways to save on taxes.
- For Employees: Contribute the maximum allowable amount to your employer-sponsored 401(k). For 2024, the contribution limit is $23,000, or $30,500 if you’re age 50 or older.
- For Self-Employed Individuals: Consider contributing to a SEP-IRA or Solo 401(k). These plans allow for significant contributions, with limits up to $66,000 depending on your income.
Contributions to traditional retirement accounts may be tax-deductible, lowering your taxable income.
- Take Advantage of Tax-Loss Harvesting
If you’ve experienced losses in your investment portfolio, consider selling underperforming investments to offset gains elsewhere. This strategy, known as tax-loss harvesting, can reduce your taxable income. You can deduct up to $3,000 in capital losses against ordinary income and carry forward additional losses to future years.
- Review Your Charitable Giving
Charitable contributions are a powerful way to give back and save on taxes.
- Cash Donations: Ensure your contributions are made to qualified organizations and keep receipts for deductions.
- Donor-Advised Funds: If you’re planning substantial future charitable contributions, consider funding a donor-advised fund this year to maximize the deduction.
- Non-Cash Donations: Donating appreciated stocks or property can avoid capital gains taxes while providing a deduction for the fair market value of the asset.
- Utilize the Annual Gift Tax Exclusion
The annual gift tax exclusion allows you to give up to $17,000 per recipient in 2024 without incurring gift taxes. This strategy is especially useful for estate planning, helping to reduce the size of your taxable estate while providing financial support to loved ones.
- Review Your Flexible Spending Accounts (FSAs)
If you have an FSA through your employer, remember that these funds are typically “use it or lose it.” Review your balance and plan to spend any remaining funds on eligible expenses, such as medical, dental, or vision costs, before the end of the year.
- Make Energy-Efficient Home Improvements
The Inflation Reduction Act continues to offer incentives for energy-efficient upgrades. Tax credits are available for improvements like solar panels, energy-efficient windows, and heat pumps. These credits not only reduce your taxes but also lower long-term energy costs.
- Consider Your Health Savings Account (HSA)
For individuals with high-deductible health plans, contributing to an HSA is a triple-tax-advantaged move. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. The 2024 contribution limits are $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution for those age 55 or older.
- Plan for Education Costs
Contribute to a 529 plan to save for your children’s or grandchildren’s education. Many states offer tax deductions or credits for contributions to these plans, and the growth is tax-free if used for qualified education expenses.
- Review Your Tax Withholding and Estimated Payments
If you’ve experienced a significant change in income or deductions this year, ensure your tax withholding or estimated payments are on track. Adjusting these now can help you avoid underpayment penalties and surprises at tax time.
Final Thoughts
Year-end tax planning is an essential step in securing your financial future. While these tips offer general guidance, everyone’s situation is unique. For personalized advice tailored to your circumstances, reach out to our office. We’re here to help you navigate the complexities of tax law and ensure you’re maximizing every opportunity to save.