As 2024 draws to a close, high-income earners have a prime opportunity to implement tax planning strategies that can significantly reduce their tax liability. By proactively reviewing your financial situation and making informed decisions before December 31, you can maximize deductions, lower taxable income, and potentially save thousands in taxes. Here are some top end-of-year tax planning tips to help you stay ahead:
1. Maximize Retirement Contributions
Contributing to tax-advantaged retirement accounts is a powerful way to reduce taxable income. For 2024, the IRS has increased the contribution limits:
401(k), 403(b), and most 457 plans: You can contribute up to $23,000, with an additional $7,500 catch-up contribution if you're aged 50 or older.
Traditional and Roth IRAs: The contribution limit is $7,000, with a $1,000 catch-up contribution for those 50 and over.
Maximizing these contributions can lower your taxable income and bolster your retirement savings.
2. Harvest Investment Losses
Capital gains taxes can be substantial for high-income individuals. Tax-loss harvesting allows you to offset gains by selling investments that have declined in value. This strategy can reduce your taxable income for the year, and any excess losses can be carried forward to offset future gains.
3. Consider Charitable Giving
Charitable donations are an excellent way to reduce taxable income while supporting causes you care about. High-income earners might consider:
Donating Appreciated Assets: Contributing stocks or other appreciated assets can help you avoid capital gains taxes and still claim a charitable deduction.
Donor-Advised Funds (DAFs): These allow you to make a charitable contribution, receive an immediate tax deduction, and recommend grants from the fund over time.
4. Defer Income to Next Year
If possible, consider deferring income to 2025. This strategy can be beneficial if you anticipate being in a lower tax bracket next year or if tax rates are expected to decrease. Deferring bonuses, consulting income, or other discretionary income can help manage your tax liability.
5. Utilize Health Savings Accounts (HSAs)
For those with high-deductible health plans, HSAs offer triple tax advantages: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. For 2024, the contribution limits are:
Self-only coverage: $4,150
Family coverage: $8,300
Individuals aged 55 or older can make an additional $1,000 catch-up contribution.
FIDELITY
6. Review Your State and Local Tax (SALT) Deduction
The SALT deduction cap remains at $10,000 for state and local taxes. High-income earners in high-tax states should consider strategies to maximize this deduction, such as prepaying property taxes or making charitable contributions that qualify for state tax credits.
7. Plan for Potential Tax Law Changes
Stay informed about potential tax law changes that could impact high-income earners. For instance, certain provisions of the Tax Cuts and Jobs Act are set to expire after 2025, which could result in higher tax rates. Planning ahead can help mitigate future tax increases.
Take Action Now
Year-end tax planning is complex, especially for high-income earners with diverse income streams and investments. Personalized strategies are essential to maximize deductions and minimize liabilities. Consulting with a tax professional can provide tailored advice to optimize your tax situation.
Ready to optimize your tax strategy? Book a session with one of our experts and make the most of this tax season. Schedule your consultation here.
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