2024 Year End Tax Planning Strategies – Low Hanging Fruit

FH - 2024 year end planning

Year-end tax planning can help you maximize your deductions, minimize your tax liability, and optimize your financial situation for the upcoming year. Here are some strategies to consider for 2024:

Defer Income

  • If possible, defer income to the next tax year (e.g., delaying a bonus). This can be especially useful if you expect to be in a lower tax bracket next year and have this option.

Review Business Income / Expenses

  • Defer income to the next tax year when possible.
  • Prepay business expenses that would otherwise be incurred after year end.
  • Consider making larger asset purchases before year-end to receive a current year deduction.

Asset Sales

  • Explore strategies for selling assets, excluding publicly traded securities, via an installment plan. Using installment sales can help defer gains into lower income tax brackets, depending on your overall situation.

Harvest Tax Losses

  • Sell underperforming investments to offset capital gains.
  • Be mindful of the wash-sale rule when repurchasing similar securities.

Retirement Plans

  • Maximize your contributions to retirement accounts, including 401(k)s, traditional IRAs, Roth IRAs, SEPs and Simple plans.  If you are age 50 or older, consider making “catch-up” contributions which can increase the overall amount you can contribute to your retirement plan.
  • Think about converting a traditional IRA to a Roth IRA. Your assets will then begin to grow tax free rather than tax deferred.  There are many variables to consider prior to a Roth conversion.  Friedman + Huey is here to help you weigh the different alternatives.
  • IF APPLICABLE, confirm you have taken your required minimum distributions from your various qualified retirement plans during 2024 (traditional IRAs, SEP, SIMPLE IRAs, etc.). This does NOT apply to Roth plans.

Consider Your Health Savings Account (HSA)

  • If you have a high-deductible health plan, contribute to an HSA.
  • Contributions are tax-deductible, and withdrawals to reimburse for qualified medical expenses incurred are tax-free.
  • Shoebox your receipts – money invested does not need to be taken out in the same year an expense is incurred and can continue to grow tax free in your HSA.

Charitable Giving Considerations

  • Consider making charitable contributions before year-end to boost your deductions.
  • Front loading contributions to a donor-advised fund – this enables you to claim a charitable deduction in 2024 while deferring the distribution to a public charity for a later date.
  • For larger donations, use appreciated securities held greater than one year. Using this strategy, you avoid income taxes on the appreciation and receive a current charitable deduction equal to the fair market value of the securities contributed.
  • If you are over 70 ½ years old, think about making a direct transfer of all or a portion of your RMD from your IRA to a public charity (QCD). The distribution can be excluded from gross income if specific requirements are met, and it will also satisfy any required minimum distribution obligations.

Explore 529 Plans

  • Contribute to a 529 college savings plan for tax-free growth on education savings.
  • Some states offer tax deductions for contributions.

Interest Rates

  • Examine your outstanding debt or current contracts in light of current interest rates and look for opportunities to refinance.

Estate Plan Updates / Annual Gifting

  • Review wills, trusts, and other estate planning documents to ensure they align with any personal or financial changes that occurred in 2024.
  • Utilize annual exclusion gifting – for 2024, you can gift up to $18,000 to any individual without using any portion of your lifetime exemption amount.
  • Pay medical expenses or tuition payments directly to the institutions for individuals who are not your dependents – such payments are not considered gifts towards the annual exclusion amount or your lifetime exemption amount.

Implementing these strategies can help you make the most of your tax situation. Consult your Friedman + Huey tax professional for advice before year end.

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