Maximizing Your Tax Savings: Strategies for 2024 Year-End Planning

As the year comes to an end, many individuals and business owners start thinking about their finances more carefully. The strategies you have now can significantly impact your tax savings for 2024. By taking a proactive approach, you can potentially save thousands.

Review Your Financial Situation

Now is the perfect opportunity to assess your current financial status. Start by tracking any changes in income, expenses, or tax deductions. For example, if you received a raise or switched jobs, your tax bracket may change, which could affect how much tax you owe next year. Organizing important documents, like your pay stubs and receipts, will make it easier to evaluate your situation. Keeping track of these details can help you understand how much you might need to pay or what deductions you can claim.

Contribute to Retirement Accounts

One of the most efficient ways to lower your taxable income is by contributing to retirement accounts. For 2024, try to maximize contributions to your 401(k) or IRA. For instance, the contribution limit for a 401(k) in 2024 is $23,000 for individuals under age 50 and $30,000 for those 50 and older. These contributions can reduce your taxable income significantly, possibly saving you hundreds or even thousands on your tax bill. If you are self-employed, consider setting up a Solo 401(k) or a Simplified Employee Pension (SEP) IRA. These options allow for larger contributions compared to a traditional IRA, maximizing your tax savings potential.

Harvest Tax Losses

Tax-loss harvesting is a valuable strategy to consider as the year ends. This involves selling investments that are currently losing value to offset the taxes on profitable investments. For example, if you've made $5,000 in capital gains but need to sell a stock at a $2,000 loss, that $2,000 can be deducted from your capital gains. Be aware of the IRS wash-sale rule, which prevents you from deducting losses on sales if you repurchase the same investment within 30 days. Stay informed about the rules to avoid surprises.

Make Charitable Contributions

Giving to charity not only helps those in need but also provides you with potential tax benefits. Donations made before December 31 can be deducted from your 2024 tax return. In 2023, 73% of Americans donated to charity, and they typically claimed an average deduction of $5,200. Consider making a cash donation or donating items like clothing or electronics, and always keep receipts for your records. If you are 70½ or older, you could also explore making Qualified Charitable Distributions (QCDs) from your IRA, which can help you meet required minimum distributions while avoiding taxable income.

Accelerate or Defer Income

Your financial outlook for next year will influence whether you should accelerate or defer your income. If you expect to be in a higher tax bracket in 2025, consider moving some income into 2024. This could mean taking on additional work or collecting bonuses early. Conversely, if your income is projected to drop next year, you might want to delay income until 2025. Speaking with a tax professional can clarify which path is best for your situation, as they can help navigate potential pitfalls.

Planning for Financial Success

Year-end tax planning in 2024 presents a crucial chance to enhance your tax savings. By reviewing your financial landscape, contributing to retirement funds, harvesting tax losses, making charitable donations, and effectively managing your income, you can better position yourself for a successful financial year. Taxes may seem complicated, but the steps you take now can lead to significant benefits down the line. Remember, investing time in planning can pay off handsomely. Don’t hesitate to consult with a tax advisor to make sure you're utilizing every opportunity available to maximize your savings. For more information, please contact The Center for Financial, Legal, and Tax Planning Inc. at (618) 997-3436.