Don’t Let Tax Season Catch You Off Guard: Essential Year-End Financial Planning Strategies for 2024
As we approach the end of 2024, savvy taxpayers are taking proactive steps to minimize their tax burden and maximize their financial opportunities before the December 31st deadline. Effective tax planning can maximize the amount of funds you will have available for retirement, reduce the cost of financing your children’s education, reduce eventual estate taxes, and assist you in managing your cash flow to help you meet your financial objectives. With strategic planning, you can transform potential tax liabilities into valuable savings opportunities.
Maximize Your Retirement Account Contributions
One of the most impactful year-end strategies involves maximizing contributions to tax-advantaged retirement accounts. For 2024, the contribution limits are $23,000 for 401(k)s (plus a $7,500 catch-up for those 50 and older) and $7,000 for IRAs (with a $1,000 catch-up). Company-sponsored 401(k) plans may be the best deal because employers often match contributions.
For business owners and self-employed individuals, additional options exist. For self-employed individuals, a simplified employee pension (SEP) IRA can be funded with 20% of self-employment earnings with a maximum of $69,000 for 2024. These contributions not only reduce your current taxable income but also provide valuable long-term retirement savings growth.
Strategic Tax-Loss Harvesting
A key year-end strategy is called “loss harvesting”—selling investments such as stocks and mutual funds to realize losses. You can then use those losses to offset any taxable gains you have realized during the year. Losses offset gains dollar for dollar. And if your losses are more than your gains, you can use up to $3,000 of excess loss to wipe out other income.
This strategy is particularly valuable in 2024, as in a year when the markets have reached record highs, you may have sold stocks and realized capital gains. By harvesting losses from underperforming investments, you can significantly reduce your overall tax liability while maintaining your investment strategy.
Charitable Giving and Deduction Strategies
Year-end charitable giving offers dual benefits: supporting causes you care about while reducing your tax burden. Charitable donations may be tax-deductible as an itemized deduction and offer planning flexibility if you decide to donate over several years. Bunching means concentrating charitable deductions in a single year, and skipping the following year, or even several years. And if you put your contributions into a donor-advised fund, you can take the charitable deduction in 2024 but spread your giving out over many years.
For those 70½ and older, Qualified charitable distributions (QCDs) allow clients to benefit by transferring up to $105,000 directly from their IRA to a qualified charity. These distributions count toward their required minimum distributions and are excluded from taxable income.
Managing Required Minimum Distributions
If you’re 73 or older, don’t forget about required minimum distributions (RMDs). If you don’t take your full RMDs by the deadline, you may be subject to an IRS 25% excise tax for every dollar under-distributed. This may be reduced to 10% if you correct the shortfall during a two-year correction window. Planning ahead for these distributions can help you manage your tax bracket and avoid costly penalties.
Income and Deduction Timing
In some years your tax planning goals may include deferring some of your current year’s tax liability to a future year, thereby freeing up cash for investment, business, or personal use. This can be accomplished by timing when certain expenses are paid or controlling when income is recognized.
Consider accelerating deductible expenses into 2024 if you expect to be in a higher tax bracket this year, or defer income to 2025 if you anticipate lower rates next year. If accelerating deductions makes sense this year: Consider all potential opportunities to accelerate deductions into 2024. For instance, if you itemize deductions, you might accelerate deductible expenses like medical expenses and qualifying interest.
Why Professional Guidance Matters
With the complexity of tax laws and the potential for significant savings, working with a qualified professional is essential. Tax planning should go far beyond making year-end adjustments to minimize the year’s income tax. Instead, it should be a year-round, collaborative process involving regular meetings with your advisors: CPA, estate planning attorney and financial advisor.
For residents in New York and Pennsylvania seeking expert tax resolution services, consulting with an experienced accountant sterling can provide the specialized guidance needed to navigate complex tax situations. All County Tax Resolution, based in Pennsylvania with services extending throughout NY, PA, and nationwide, specializes in helping individuals and businesses resolve IRS and state tax problems while maintaining the highest level of privacy and confidentiality throughout the resolution process.
Take Action Before December 31st
The window for 2024 tax planning is rapidly closing. There are a number of opportunities to consider before year-end to help manage your tax bill. December 31 will be here before you know it; think about the actions below today. Whether you’re maximizing retirement contributions, harvesting investment losses, or planning charitable donations, each strategy requires careful consideration and timely execution.
Year-end tax planning is more than a routine task; it’s a chance to craft strategies that turn last-minute financial stress into actionable opportunities. By applying techniques such as tax-loss harvesting, charitable bunching, accelerating deductions, and deferring income, you can help achieve significant tax savings and prepare for a financially strong year ahead.
Don’t wait until the last minute. Start implementing these strategies today to ensure you’re maximizing every available opportunity to reduce your 2024 tax liability and set yourself up for financial success in 2025 and beyond.