As the year winds down, there’s an important deadline looming: the end of the tax year. The good news is you still have time to strategize and potentially reduce your tax burden before the New Year. Here are a few possibilities to get you started:
Check your tax withholding
It you had unexpected income or gains earlier this year and haven’t made estimated tax payments, increase your withholding for the remainder of 2024 to reduce or eliminate any underpayment.
Our tax experts can help you adjust your withholding amount to help eliminate an underpayment penalty.
Consider bunching itemized deductions
When filing, you can deduct the greater of itemized deductions — mortgage interest, charitable contributions, medical expenses and taxes — or the standard deduction.
The 2024 standard deduction is $14,600 for singles and married individuals filing separately, $29,200 for married couples filing jointly and $21,900 for heads of households. If your total itemized deductions will be close to the standard deduction, consider “bunching” itemized deductions, so they exceed your standard deduction.
Sell investments
It you’re looking to sell appreciated securities, it’s typically best to wait until they’ve been held for over a year to generate a long-term capital gain. You may also consider selling stocks that are worth less than amount you paid for them. Taking the resulting capital losses this year will shelter capital gains.
Note that selling investments to generate a tax gain or loss doesn’t apply to investments held in a retirement account where the gains and losses are not currently taxed.
Make charitable donations
You can reduce your 2024 taxable income by making charitable donations, as long as your itemized deductions exceed the standard deduction. If you donate assets to a public charity, you can deduct their fair market value and avoid the tax you would’ve paid if you sold the asset and donated the cash.
If you’re 70½ or older by the end of 2024, have a traditional IRA and are unable to itemize deductions, you may consider making 2024 charitable donations via qualified charitable distributions from your IRA.
Convert a traditional IRA into a Roth account
Converting makes sense when you expect to be in the same or higher tax bracket during your retirement years. In that situation, the current tax cost from a conversion this year could be a small price to pay for eluding potentially higher tax rates in the future on the account’s post-conversion earnings.
Spend remaining FSA funds
Generally, flexible spending account (FSA) funds not spent before the plan’s year-end are forfeited. There are a few exceptions, as some employers can allow their employees to carry over up to $640 from their 2024 medical FSA into their 2025 account.
It’s also a good time to consider increasing the amount set aside for next year’s FSA, especially if you put aside too little for the past year and you’re anticipating similar medical costs going forward.
Take advantage of the annual gift tax exclusion
The basic estate, gift and generation skipping transfer tax exclusion is scheduled to decrease significantly from $13.61 million ($27.22 million for married couples) in 2024 to $5 million ($10 million for married couples) in 2026. Annual exclusion gifts can help reduce your taxable estate. For 2024, you can make annual exclusion gifts up to $18,000 per gift recipients, with no limit on the number of gift recipients.
At Magone & Company, we can help you explore practical, easy-to-implement strategies to achieve a more favorable tax situation. We look forward to working together to create a plan based on your unique tax situation. Give us a call today at (973) 301-2300.
This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your tax situation.