As the year winds down and we begin to turn our thoughts to the holidays, family gatherings, and resolutions for the future, tax planning can often feel like an afterthought—something to push to the back burner until January. But those who wait risk missing out on valuable opportunities to minimize their tax liabilities. It’s not just about avoiding taxes; it’s about making your financial decisions work for you, instead of letting uncertainty drive them. The key to an efficient tax strategy lies in knowing what’s ahead and taking action now.
Five Year-End Tax Strategies to Consider
As you gear up for the end of the year, here are five actionable strategies to help optimize your financial position and potentially reduce your 2024 tax bill:
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Clarify Your Financial Snapshot
The first step is to assess where you stand. Collaborate with your tax advisor to review your projected tax liabilities and overall financial picture. This could involve requesting a tax summary or pro forma analysis to anticipate your tax situation. With this foundation, you can evaluate whether certain tax strategies align with your needs, such as contributing more to retirement accounts or making charitable donations.
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Leverage Tax-Loss Harvesting
Market fluctuations, while often unsettling, can present tax-saving opportunities. By selling investments that have decreased in value, you can offset gains from other investments and lower your taxable income through tax-loss harvesting. Be mindful of the “wash sale rule,” which disallows the repurchase of substantially identical securities within 30 days. If you want to maintain exposure to an investment, consider buying additional shares and waiting 30 days before selling the original shares at a loss.
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Strategize Your Charitable Contributions
Charitable giving is a meaningful way to support the causes you care about while also reaping tax benefits. To maximize the impact of your donations, consider establishing a donor-advised fund (DAF). This allows you to take an immediate tax deduction while taking your time to decide where to allocate the funds. Ensure any contributions are processed before December 31 to count toward the 2024 tax year.
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Maximize Retirement Contributions and Explore Roth Conversions
Making the most of your retirement account contributions not only strengthens your long-term financial security but can also provide immediate tax benefits. In 2024, the contribution limits for IRAs are $7,000 (or $8,000 if you’re 50 or older), and for 401(k) plans, $23,000 (or $30,500 if you’re 50 or older).
If you expect higher tax rates in the future, consider converting some traditional IRA assets to a Roth IRA. Though you’ll pay taxes on the conversion now, the future withdrawals will be tax-free, potentially benefiting you down the road.
Also, if you’re required to take Required Minimum Distributions (RMDs), ensure you do so by December 31 to avoid steep penalties. For those aged 70½ or older, a Qualified Charitable Distribution (QCD) can satisfy your RMD requirement while offering a tax break.
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Make Thoughtful Gifts to Your Family
With the current lifetime gift and estate tax exclusion amount set to decrease after 2025, now is an ideal time to consider transferring assets to loved ones. This can be done without impacting your financial stability, thanks to the generous limits in place.
Additionally, the 2024 annual gift tax exclusion allows you to give up to $17,000 per recipient without incurring gift taxes. Funding 529 educational savings accounts is another smart move, offering tax-free growth and tax-free withdrawals when used for education expenses.
Final Thoughts: The Value of Professional Guidance
Navigating the world of tax strategies can be complex, which is why the guidance of a trusted advisor is invaluable. Your financial and tax advisors can help you ensure that your strategies are aligned with your overall financial goals and that your end-of-year planning maximizes available benefits.
By acting now, you’re not only securing tax savings for 2024—you’re laying a foundation for long-term financial well-being. Early planning is an act of financial self-care that will serve you well into the future. Reach out to The Humphreys Group to get started.
