Tax-Planning Strategies to Lower Your 2024 Tax Bill
Tax Day may seem far away, but smart tax planning starts now. By taking proactive steps before December 31, you can significantly reduce your 2024 tax bill and set yourself up for a smoother tax season. Many effective strategies require action before the year ends, while others can wait until Tax Day—but the key is to plan ahead. Let’s explore some of the best tax-saving moves you can make before the year closes, as well as strategies to finalize by April 15, 2025.
Strategies to Implement Before December 31:
1. Take Required Minimum Distributions (RMDs)
If you’re 73 or older, you’re required to withdraw a minimum amount annually from your tax-deferred retirement accounts. Missing this deadline could result in a steep 25% penalty on the amount not withdrawn. If 2024 is your first RMD year, you have until April 1, 2025, but planning ahead can help reduce the tax impact of future RMDs.
2. Maximize Retirement Contributions
Contribute as much as you can to your employer-sponsored retirement plan to take full advantage of any employer match—it’s essentially free money! For 2024, you can contribute up to $23,000 ($30,500 if you’re 50 or older). If you anticipate a higher tax bracket during retirement, consider making after-tax contributions to a Roth 401(k).
3. Consider a Roth IRA Conversion
If your income disqualifies you from contributing directly to a Roth IRA, converting a traditional IRA to a Roth IRA could be a strategic move. While you’ll pay taxes on the converted amount, the future tax-free withdrawals could be worth it. Just be cautious of converting too much and unintentionally bumping yourself into a higher tax bracket.
4. Optimize Charitable Contributions
Make charitable donations by December 31 to qualify for deductions if you itemize. For maximum tax efficiency, donate appreciated assets instead of cash. If you’re 70½ or older, consider making a Qualified Charitable Distribution (QCD) from your IRA—it satisfies RMD requirements and reduces your taxable income.
5. Harvest Tax Losses
Selling underperforming investments to realize losses can offset capital gains from other investments, potentially reducing your taxable income. You can also deduct up to $3,000 of losses against ordinary income and carry forward excess losses to future years. Be aware of the wash-sale rule, which prohibits repurchasing the same or similar investments within 30 days of the sale.
Strategies to Finalize by Tax Day:
1. Contribute to Tax-Advantaged Accounts
● Health Savings Accounts (HSAs): For 2024, contribute up to $4,150 if you’re an individual or $8,300 for families. An additional $1,000 catch-up contribution is allowed if you’re 55 or older. HSAs offer triple tax advantages: tax-free contributions, growth, and withdrawals for qualified medical expenses.
● Traditional IRAs: Contribute up to $7,000 ($8,000 if you’re 50 or older). Depending on your income and retirement plan coverage, contributions may be tax-deductible.
2. Fund a Roth IRA
Although Roth IRA contributions don’t reduce your current taxable income, they offer tax-free growth and withdrawals in retirement. Be mindful of income limits to ensure you’re eligible to contribute.
Wrapping Up:
Tax planning isn’t just about reducing your tax bill today—it’s about optimizing your long-term financial future. By implementing these strategies early, you can not only minimize your 2024 tax liability but also build a foundation for smarter financial planning.For personalized advice tailored to your situation, consult a tax professional or financial advisor. A little preparation now can save you time, stress, and money when Tax Day arrives.
Start planning today and set yourself up for success this tax season!
Have questions on tax strategy?
Contact us HERE
