As the year winds down, now is the perfect time to focus on strategies to minimize your tax liability and keep more of your hard-earned money. Effective year-end tax planning can help you maximize deductions, take advantage of tax credits, and prepare for the upcoming filing season. Here are actionable tips to help you save:
Maximize Retirement Contributions
Contributing to retirement accounts is one of the easiest ways to reduce your taxable income. Consider these options:
- 401(k): Increase contributions before the year ends. For 2024, the limit is $22,500 (or $30,000 if you’re 50 or older).
- Traditional IRA: Contributions may be deductible depending on your income and filing status. The limit for 2024 is $7,000 (or $8,000 for those 50+).
Harvest Tax Losses
Offset capital gains by selling underperforming investments. Known as tax-loss harvesting, this strategy allows you to reduce taxable gains or offset up to $3,000 of ordinary income.
Tip: Be mindful of the wash-sale rule, which prohibits repurchasing the same or similar security within 30 days of the sale.
Charitable Giving
Donations to qualified charities can reduce your taxable income.
- Cash Donations: Claim deductions for contributions up to 60% of your adjusted gross income (AGI).
- Non-Cash Donations: Donate goods like clothing or household items and ensure you get a receipt for the fair market value.
- Qualified Charitable Distributions (QCDs): If you’re 70½ or older, donate directly from your IRA to a charity.
Review Your Flexible Spending Accounts (FSAs)
Check your FSA balance. Many plans have a “use it or lose it” policy, meaning unused funds might not carry over to the next year.
- Schedule doctor visits, dental cleanings, or purchase eligible medical supplies.
- Some plans allow a small rollover or a grace period—confirm with your employer.
Take Advantage of Tax Credits
Credits reduce your tax bill dollar-for-dollar. Here are some to consider:
- Child Tax Credit: If you have dependents, make sure you’re claiming the full amount.
- Energy-Efficient Home Improvements: Invest in energy-efficient appliances or upgrades to qualify for credits like the Residential Clean Energy Credit.
Prepay Deductible Expenses
Accelerate payments for deductible expenses like property taxes, mortgage interest, or medical expenses if you plan to itemize your deductions.
Defer Income
If you expect your income to drop in the following year, consider deferring bonuses or business income to reduce your current-year tax liability.
Organize Your Tax Documents
Preparing now can save you stress when filing your tax return:
- Collect W-2s, 1099s, and other income statements.
- Keep receipts for deductible expenses.
- Track estimated tax payments or credits carried forward.
Review Your Withholdings
Use the IRS Withholding Estimator to ensure you’re not over- or under-withholding taxes. Adjust Form W-4 if needed to avoid penalties or refunds.
Consult a Tax Professional
Tax laws change frequently, and personalized advice can ensure you’re taking advantage of all available strategies. Meet with a tax professional before December 31 to finalize your year-end tax plan.
Take Action Today
Proactive tax planning now can make a significant difference in your financial health. Don’t wait until the last minute—take these steps today to reduce your tax liability and start the new year on the right financial footing.
