Top Tax Strategies to use Before 2024 Ends
By: Brian Stidd, CPA, CVA, Owner of Stidd CPA
As 2025 approaches, tax planning is more important than ever. With recent changes in tax laws, inflationary pressures, and evolving financial circumstances, being proactive about your taxes can save you significant money. Whether you’re an individual taxpayer or a business owner, adopting smart strategies before year-end can make a big difference when tax season rolls around. Below are some key tax strategies for the balance of 2024 that will help you minimize your tax liability and make the most of the current tax landscape.
1. Maximize Retirement Contributions
Contributing to retirement accounts is one of the most effective ways to reduce taxable income while securing your financial future. Here are the key contribution limits for 2024:
– 401(k) Contributions: The contribution limit for 401(k) plans is $23,000 for 2024, with an additional catch-up contribution of $7,500 for individuals aged 50 or older. Contributions to traditional 401(k) plans are made pre-tax, reducing your taxable income.
– IRA Contributions: For 2024, the maximum contribution to an Individual Retirement Account (IRA) is $7,000, with a $1,000 catch-up contribution for those aged 50 and older. Contributions to a traditional IRA may be tax-deductible, depending on your income and whether you or your spouse is covered by an employer-sponsored retirement plan.
– SEP and SIMPLE IRAs: For self-employed individuals and small business owners, contributing to a Simplified Employee Pension (SEP) IRA or a Savings Incentive Match Plan for Employees (SIMPLE) IRA can significantly reduce taxable income. SEP IRA contributions can be as high as 25% of your compensation, up to a maximum of $69,000.
2. Leverage Health Savings Accounts (HSAs)
If you’re enrolled in a high-deductible health plan (HDHP), contributing to a Health Savings Account (HSA) is a tax-efficient strategy. HSAs offer a triple tax benefit: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free.
– For 2024, the HSA contribution limit is $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution for individuals aged 55 or older.
– HSAs are an excellent way to save for future healthcare expenses while lowering your taxable income. Contributions can be made up until the tax-filing deadline (April 15, 2025) to count toward your 2024 taxes.
3. Take Advantage of Capital Gains and Loss Harvesting
Capital gains tax planning is crucial for investors with taxable investment accounts. If you’ve experienced significant gains in your portfolio, consider these strategies:
– Harvest Capital Gains: If your income places you in the 0% capital gains tax bracket (for single filers with income up to $44,625 or married filers with income up to $89,250), consider selling investments with gains to avoid paying federal taxes on those gains.
– Harvest Capital Losses: If you’ve experienced losses in your investments, selling those assets can help offset capital gains. This strategy, known as tax-loss harvesting, allows you to offset an unlimited amount of gains and deduct up to $3,000 of excess losses against other income. Losses exceeding this amount can be carried forward to future tax years.
4. Charitable Contributions
Making charitable donations is not only a way to give back but also a powerful tax-saving tool. Under current law, you can deduct charitable donations if you itemize your deductions. However, there are ways to enhance the tax benefits of charitable giving:
-Bunching Donations: If your itemized deductions do not exceed the standard deduction ($14,600 for individuals and $29,200 for married couples in 2024), consider bunching several years’ worth of charitable donations into a single year. This can push your deductions above the standard deduction threshold, allowing you to benefit from itemizing.
– Donor-Advised Funds: If you want to make a large charitable contribution now but spread the donations to specific charities over time, consider contributing to a donor-advised fund (DAF). You can take the tax deduction in the year you contribute to the DAF, even if the money is not distributed to charities until later.
5. Review Tax Credits and Deductions
Certain tax credits and deductions can significantly reduce your tax bill. Make sure you’re taking full advantage of the following:
-Child Tax Credit (CTC): For 2024, the Child Tax Credit is $2,000 per qualifying child under the age of 17. The credit begins to phase out for single filers with income over $200,000 and joint filers with income over $400,000.
-Earned Income Tax Credit (EITC): The EITC is a refundable credit for low- and moderate-income earners. For 2024, the maximum EITC is $7,830 for a family with three or more qualifying children.
-Energy Efficiency Credits: If you plan to make energy-efficient improvements to your home, such as installing solar panels, energy-efficient windows, or insulation, you may be eligible for the Residential Clean Energy Credit. This credit allows you to claim up to 30% of the cost of qualifying home improvements through 2032.
-Education Credits: If you’re paying for higher education expenses, the American Opportunity Tax Credit (AOTC) provides up to $2,500 per student for qualified education expenses. The Lifetime Learning Credit offers up to $2,000 per tax return for education expenses at eligible institutions.
6. Consider Estate and Gift Tax Planning
If you’re concerned about estate taxes or want to pass on wealth to family members, 2024 offers opportunities to gift assets while reducing your taxable estate. The annual gift tax exclusion is $18,000 per recipient. You can gift this amount to as many individuals as you like without triggering any gift tax or affecting your lifetime estate and gift tax exemption (set at $13.61 million in 2024).
7. Use Tax-Deferred Investment Accounts
If you’ve maxed out your 401(k) and IRA contributions, consider tax-deferred investment vehicles, such as 529 Plans for education savings or tax-deferred annuities. These accounts allow your investments to grow without being taxed until funds are withdrawn, potentially lowering your overall tax burden.
8. Roth IRA Conversions
If you expect your income to be lower in 2024 or foresee higher taxes in the future, consider converting a portion of your traditional IRA to a Roth IRA. Although you’ll pay taxes on the amount converted now, future withdrawals from the Roth IRA are tax-free, provided you meet certain conditions. This strategy is particularly useful if you expect to be in a higher tax bracket later or want to leave tax-free income to heirs.
9. Plan for Changes in Tax Laws
While many provisions from the Tax Cuts and Jobs Act (TCJA) are still in effect, some may expire or change in the coming years. It’s essential to stay updated on potential legislative changes that could impact your tax planning. Working closely with a CPA can help you navigate these uncertainties and optimize your tax strategies for future years.
Conclusion
The tax landscape in 2024 presents several opportunities for taxpayers to reduce their liabilities and maximize savings. By strategically contributing to retirement accounts, leveraging tax credits, utilizing charitable giving, and considering capital gains planning, you can minimize the taxes you owe and keep more of your hard-earned money. Consulting with a CPA is the best way to ensure you’re taking full advantage of these tax-saving opportunities and staying compliant with IRS regulations.
If you have any questions or would like personalized advice, contact your CPA to discuss the best tax strategies for your specific situation.
Brian Stidd has nearly 20 years of experience in both public accounting and
the private sector. His experience in both public and private sectors gives
him a unique ability to assist businesses. Brian specializes in business and
individual tax planning, advisory and preparation as well as general business
accounting and advisory.
To learn more or get in touch, visit stiddcpa.com