Year-End Tax Planning: Top Strategies to Maximize Savings for 2024

With the year quickly coming to an end, it's the perfect time to begin planning for year-end taxes. September is an ideal month to assess your financial situation and make strategic decisions that could significantly impact your tax liabilities. Proactive year-end tax planning isn’t just for the last days of December, starting early provides an opportunity to maximize savings and enhance your overall financial health.

Key strategies such as maximizing contributions to tax-advantaged accounts, tax-loss harvesting, and charitable giving can position you for a more favorable outcome when tax season arrives. This guide outlines essential steps you can take during the final months of the year to make informed decisions and take control of your tax planning.

1. Maximizing Tax-Advantaged Accounts

IRA and 401(k) Contributions

As the year ends, maximizing contributions to retirement accounts such as IRAs and 401(k)s is essential. Not only do these contributions help bolster retirement savings, but they also provide valuable tax deductions. For 2024, the contribution limits are $7,000 for IRAs ($8,000 for those aged 50+), and $23,000 for 401(k)s ($30,500 for those aged 50+). Contributing the maximum allowable amount before December 31 can significantly reduce your taxable income.

Health Savings Accounts (HSAs)

Health Savings Accounts (HSAs) offer triple tax advantages—contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free. The 2024 maximum contributions are $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution for those aged 55+. Maxing out your HSA can not only help with medical expenses but also provide another layer of tax savings.

2. Tax-Loss Harvesting

Portfolio Review

Year-end is an excellent time to review your investment portfolio for tax-loss harvesting opportunities. This strategy involves selling underperforming assets to realize losses, which can offset capital gains and reduce overall tax liability. By strategically selling assets, you can improve your portfolio’s tax efficiency and potentially increase your after-tax returns.

Rebalancing for Tax Efficiency

Rebalancing your portfolio is important to maintain your desired risk-return balance, but it also has tax implications. When rebalancing, consider the tax impact of selling assets. Choosing the right assets to sell at the right time can minimize taxes while keeping your portfolio aligned with your goals.

3. Charitable Giving Strategies

Donor-Advised Funds (DAFs)

Donor-advised funds (DAFs) provide a flexible way to make charitable contributions while receiving an immediate tax deduction. You can contribute to a DAF in the current year, claim the tax deduction, and then distribute the funds to chosen charities over time. This strategy is ideal for those seeking to maximize both their philanthropic efforts and tax savings.

Qualified Charitable Distributions (QCDs)

For individuals aged 70½ or older, Qualified Charitable Distributions (QCDs) from IRAs offer a tax-efficient way to meet Required Minimum Distributions (RMDs) while supporting charities. QCDs allow you to transfer up to $105,000 directly from your IRA to a qualified charity without including the distribution in your taxable income, thus lowering your overall tax burden. It is important to note that a QCD cannot be made to a Donor Advised Fund.

4. Year-End Gifting and Estate Planning

Annual Gift Exclusion

In 2024, you can gift up to $18,000 per recipient without incurring gift taxes, which helps reduce your taxable estate. Taking advantage of this exclusion by making gifts before the year ends can provide financial support to loved ones while lowering future estate taxes.

Trust Funding

If you’ve established trusts, now is the time to ensure they are properly funded. Properly funding a trust not only ensures its objectives are met but also provides the intended estate planning and tax benefits. This crucial step safeguards your legacy and ensures your estate plan is carried out as intended.

5. Roth Conversions

Strategic Roth IRA Conversions

Converting assets from a traditional IRA to a Roth IRA before year-end can be a powerful tax strategy, especially if you expect to be in a higher tax bracket in the future. Although a Roth conversion triggers a taxable event now, it allows for tax-free withdrawals in retirement. Carefully consider this strategy as part of your long-term tax planning.

6. Reviewing Deductions and Credits

Itemized vs. Standard Deductions

As the year winds down, review whether you should itemize deductions or take the standard deduction. Factors like mortgage interest, medical expenses, and charitable contributions play a big role in determining which option provides the most tax savings.

Review Tax Credits

Make sure you're claiming all the tax credits you're eligible for, such as the Child Tax Credit, Earned Income Tax Credit, or education-related credits. These credits directly reduce the amount of tax owed and can make a significant impact on your tax liability.

7. Business Owner Considerations

Depreciation Strategies

Business owners should consider strategies for maximizing depreciation deductions before year-end. Accelerating depreciation via Section 179 or bonus depreciation can reduce taxable income and boost cash flow, making it a valuable tool in year-end tax planning.

Estimated Tax Payments

Ensure that your estimated tax payments for the year are accurate to avoid underpayment penalties. Reviewing these payments provides a clearer understanding of your overall tax situation and prevents surprises when taxes are due.

8. Preparing for 2025 Tax Changes

Tax Law Updates

Stay informed about tax law changes that will take effect in 2025. Understanding new tax rules now allows you to plan ahead and make necessary adjustments to your strategy, ensuring you're prepared to take full advantage of new opportunities and minimize any negative impact.

Conclusion

Proactive year-end tax planning can make a significant difference in your financial future. By taking steps now—such as maximizing contributions, harvesting losses, and making charitable donations—you can reduce your current tax liabilities and set yourself up for long-term success. As tax laws evolve, staying informed and working with a tax professional can help you make strategic decisions that optimize both your short-term and long-term financial goals.

Whether you're aiming to lower your taxable income, boost retirement savings, or position yourself for future tax changes, the strategies outlined in this guide provide a roadmap for smart, informed decisions that will benefit your financial health for years to come.

- Article published on 10/16/24 -

Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information in this article has been sourced from irs.gov and fidelity.com. 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

LPL # 645138