We’re approaching the end of the calendar year and tax season is just around the corner. That makes it an ideal time to review your financial situation and consider strategies that may help you manage your tax obligations more efficiently. Tax planning before December 31st allows you to make adjustments that may influence your financial outlook for the upcoming year. Taking thoughtful steps now can better position you for success in 2024 and beyond. Here are several year-end tax strategies to consider as you prepare for a prosperous new year.
1. Evaluate Your Income and Tax Bracket
Understanding where you fall within the tax brackets can help you identify strategies to manage your tax liability. If you anticipate higher income in 2024, you might look into deferring income into the new year, where possible. This could involve delaying a year-end bonus or postponing certain self-employment earnings.
Working with a tax professional can provide clarity on how these decisions may impact your overall tax picture, as everyone has different needs and goals.
2. Review Your Investment Portfolio
Year-end is a natural time to revisit your investment strategy, particularly from a tax perspective. Tax-loss harvesting, for instance, involves selling investments that have decreased in value to offset gains from other investments. This strategy may reduce your taxable income and help you maintain a balanced portfolio.
However, keep in mind the “wash-sale rule,” which prevents you from purchasing the same or substantially identical securities within 30 days of the sale if you intend to claim the loss.
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3. Optimize Retirement Contributions
Contributing to retirement accounts not only supports your long-term financial goals but may also offer tax advantages. Contributions to traditional IRAs or 401(k) accounts are often tax-deductible, lowering your taxable income for the year. For 2024, the 401(k) contribution limit is $23,000, with an additional catch-up contribution of $7,500 for individuals aged 50 or older, bringing their total limit to $30,500. The IRA contribution limit has increased to $7,000, with a $1,000 catch-up contribution for those 50 and older, allowing a total of $8,000.
If you own a business or are self-employed, consider contributing to a SEP IRA or a solo 401(k). These plans often have higher contribution limits, offering more opportunities for tax deferral.
4. Take Advantage of Charitable Giving
If you itemize deductions, charitable donations are another way to potentially reduce taxable income while supporting causes you care about. Contributions made to qualified organizations by December 31 can be deducted on your 2024 tax return.
Beyond cash donations, consider donating appreciated assets, such as stocks or mutual funds, which can provide an additional benefit of avoiding capital gains taxes. For larger gifts, donor-advised funds allow you to make a contribution in the current year while granting you flexibility to allocate funds to specific charities later.
5. Consider Additional Tax-Advantaged Savings Accounts
Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) can help you save for medical expenses with pre-tax dollars. HSAs, in particular, provide a triple tax advantage: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified expenses are not taxed.
For 2024, the Health Savings Account (HSA) contribution limits have increased to $4,150 for individuals with self-only coverage and $8,300 for those with family coverage. Individuals aged 55 or older can make an additional catch-up contribution of $1,000.Unlike FSAs, funds in HSAs roll over from year to year, making them a valuable long-term savings tool.
If you have an FSA, review your plan’s rules regarding year-end deadlines. Some FSAs allow a grace period or limited carryover of unused funds, but it’s best to use any remaining balance to avoid forfeiture.
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6. Leverage Tax Credits
Tax credits directly reduce your tax liability and can be a valuable component of year-end planning. Common credits to review include:
- Child Tax Credit: If you have children, ensure you’re taking full advantage of this credit based on your income and family size.
- Energy Efficiency Credits: Investing in energy-efficient home improvements or electric vehicles may qualify you for specific federal tax credits.
- Education Credits: Credits like the Lifetime Learning Credit can offset costs associated with continuing education or skill development.
Understanding which credits you qualify for and ensuring you’ve taken the necessary steps to claim them on your tax return may provide beneficial savings.
7. Review Tax Withholding and Estimated Payments
If you’re employed, review your withholding to ensure you’ve had the appropriate amount of taxes withheld from your paycheck. Too little withholding could lead to a tax bill next spring, while too much could mean you’ve given the IRS an interest-free loan.
For those who make estimated tax payments, such as self-employed individuals, check that your payments align with your projected tax liability for the year. Making an adjustment before the final quarterly payment in January can help you avoid penalties and enjoy a more prosperous new year.
8. Plan for Estate and Gift Taxes
If estate planning is a priority, consider using the annual gift tax exclusion, which allows you to gift up to $18,000 per recipient in 2024 without affecting your lifetime estate tax exemption. This strategy can reduce the size of your taxable estate while supporting loved ones or causes you care about.
For larger estates, consult with an estate planning professional to explore additional tax-efficient strategies tailored to your situation.
Preparing for a More Prosperous New Year
Year-end tax planning is about more than minimizing taxes—it’s an opportunity to review your financial goals and make intentional decisions that support prosperity in the New Year and beyond. By taking the time to assess your situation and implement effective strategies, you can start the new year with a clear understanding of your financial position.
While many of these strategies can be implemented independently, consulting with a financial or tax professional can provide personalized guidance that aligns with your specific circumstances. At Flourish Wealth Management, we’re ready to help you write the next chapter in your money story. Schedule your complimentary Get Acquainted Call with us today to learn more about our services and process. We look forward to helping you feel financially empowered in 2025 and beyond!
