As we approach the end of 2024, now is the perfect time to review your financial situation and take action to optimize your tax position. A few proactive steps can help reduce your tax liability and put you on stronger financial footing for the upcoming year. Here’s a rundown of essential tax moves to make before December 31:
1. Maximize Retirement Contributions
Contributing to retirement accounts is one of the most effective ways to reduce taxable income. Consider these limits for 2024:
401(k): You can contribute up to $23,000 if you’re under 50, or $30,500 with catch-up contributions if you’re 50 or older.
Traditional IRA: Up to $7,000 (or $8,000 for those 50+), provided you meet the income eligibility.
Contributions to these accounts before the year ends may qualify as deductions, reducing your taxable income.
2. Evaluate Your Capital Gains and Losses
If you have investments, review your portfolio to see if there’s an opportunity for tax-loss harvesting. This strategy involves selling underperforming assets to offset capital gains. Even if your losses exceed gains, you can deduct up to $3,000 against other income and carry any additional loss into future years.
3. Make Charitable Contributions
Donations made to qualified charities by December 31 can be deducted on your 2024 tax return. Whether cash donations, goods, or securities, be sure to keep proper records:
Cash contributions require a bank record or receipt.
Donated goods should be itemized and valued appropriately.
4. Review Your Withholdings
Check if your withholdings and estimated tax payments are on track to avoid potential penalties. If you’ve earned additional income or experienced major life changes, adjusting your Form W-4 with your employer may help fine-tune your tax obligations.
5. Use Up Flexible Spending Account (FSA) Funds
If you have an FSA, remember that most plans have a use-it-or-lose-it policy by year-end or allow a small carryover. Spend down your FSA by scheduling eligible expenses like medical procedures, vision care, or purchasing medical supplies.
6. Consider Year-End Bonuses and Income Timing
If you’re self-employed or can control your income timing, delaying invoicing until January may help defer income to 2025, depending on your tax situation. Conversely, accelerating deductions by making business purchases before year-end can further lower your 2024 taxable income.
7. Take Advantage of Business Deductions
Business owners should ensure they’re capitalizing on year-end deductions:
Section 179 Expensing: Deduct the full cost of qualifying equipment and software up to the limit.
Prepay Expenses: Certain business expenses paid by December 31 can be deducted this year, such as rent or insurance.
8. Plan for Education Credits
If you or a dependent is pursuing higher education, the American Opportunity Tax Credit or Lifetime Learning Credit can offer significant tax savings. Paying for qualified education expenses by year-end can help you maximize these credits.
9. Review Your Health Savings Account (HSA) Contributions
HSAs are triple-tax advantaged, providing deductions for contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. The contribution limit for 2024 is $3,850 for individuals and $7,750 for families, with an extra $1,000 catch-up for those over 55.
10. Set Up a Donor-Advised Fund
If you’re interested in charitable giving but need time to decide which organizations to support, a donor-advised fund (DAF) allows you to contribute now for an immediate tax deduction and distribute funds to charities later.
Take Action Before Time Runs Out
These strategic moves can significantly impact your 2024 tax return, but proper planning and execution are essential. Don’t leave potential savings on the table!
For personalized tax advice and help with executing these strategies, visit www.jstaxcorp.com to schedule your free 20-minute consultation. Let our expert team help you close out the year strong and enter 2025 with confidence.
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