Essential Year-End Tax Moves You Can't Afford to Miss

As the year comes to a close, it's an excellent time to review your financial situation and take steps to minimize your tax liability. With some strategic planning, you can leverage several tax-saving opportunities. Here are key strategies to consider before the year's end:

1. Itemizing Deductions and Medical Expenses

If you itemize deductions, you may reduce your taxable income by paying outstanding medical bills. For these expenses to qualify, they must exceed 7.5% of your adjusted gross income (AGI). Even if you don’t have the cash available, you can charge these expenses to a credit card before year-end to claim them for the current tax year. This strategy is especially beneficial if you’ve had substantial medical costs during the year.

2. Prepaying Property Taxes

Prepaying the second installment of your property taxes can boost your itemized deductions for the current year. However, keep in mind the $10,000 cap on state and local tax (SALT) deductions, which includes property taxes. If you're close to the limit, prepaying may not provide additional tax benefits.

3. Charitable Contributions and Bunching Deductions

Charitable contributions can lower your taxable income while supporting causes you value. If you marginally itemize each year, consider "bunching" deductions by combining charitable contributions and other deductible expenses into a single tax year. This allows you to exceed the standard deduction threshold in one year and take the standard deduction the next year.

4. Required Minimum Distributions (RMDs)

If you're 73 or older, you must take your RMDs from retirement accounts by December 31, 2024, to avoid a 25% penalty on the amount not withdrawn. However, if 2024 is the year you turned 73, you can delay your first RMD until April 1, 2025. Be aware that delaying will require you to take two distributions in 2025, which could impact your tax bracket.

5. Qualified Charitable Distributions (QCDs)

Individuals aged 70½ or older can transfer funds directly from an IRA to qualified charities without the amount being taxable. The 2024 limit for QCDs is $105,000. This strategy not only satisfies your RMD but also lowers your AGI, which can reduce the taxation of Social Security benefits and improve eligibility for certain credits or deductions.

6. Maximizing Retirement Contributions

Contribute the maximum allowed to retirement accounts like 401(k)s and IRAs. For 2024, the limits are:

• 401(k): $23,000 plus a $7,500 catch-up for those aged 50 or older.

• IRA: $7,000 plus a $1,000 catch-up for those aged 50 or older.

These contributions reduce taxable income and grow tax-deferred.

7. Tax Loss Harvesting

Sell underperforming stocks to offset capital gains and reduce taxable income. Be mindful of the "wash sale" rule, which disallows a deduction if you repurchase the same or a similar security within 30 days.

8. Reviewing Withholdings and Estimated Taxes

Ensure your withholdings or estimated tax payments are sufficient to avoid penalties. Increasing withholdings before year-end can cover shortfalls, as these payments are treated as if made evenly throughout the year.

9. Managing Health FSAs

Use remaining balances in your Flexible Spending Account (FSA) before they expire. For 2024, $640 can be carried into 2025 but must be used by mid-March.

10. Health Savings Account (HSA) Contributions

If you became HSA-eligible late in the year, you can still make a full year's worth of contributions. HSAs offer triple tax advantages: contributions are deductible, earnings grow tax-free, and distributions for medical expenses are also tax-free.

11. Prepaying College Tuition

If you qualify for education tax credits, such as the American Opportunity or Lifetime Learning Credit, consider prepaying tuition for academic periods starting in early 2025. This can help maximize your 2024 credit.

12. Taking Advantage of Low Income

If your income is unusually low this year:

• Convert to a Roth IRA: A lower income means a lower tax rate on conversions.

• Capitalize on 0% Long-Term Capital Gains: Sell appreciated assets to lock in gains tax-free if your taxable income is below the threshold.

  
  

13. Annual Gift Tax Exemption

You can gift up to $18,000 per recipient in 2024 ($19,000 in 2025) without incurring gift tax. Married couples can double this amount by combining their exemptions.

By implementing these strategies, you can maximize your financial benefits and minimize your tax burden. Remember, tax planning is a year-round activity, and these year-end actions are just one component of a comprehensive strategy. Contact our office for personalized assistance.