Last Minute Tax Planning Tips for 2024
As we approach the end of 2024, we wanted to share some helpful tips that could potentially reduce your 2024 income tax liability. Please discuss these tips with your CPA before taking any action that could impact your taxes.
MAXIMIZING ITEMIZED DEDUCTIONS
The enactment of the Tax Cuts and Jobs Act in 2018 increased the standard deduction and eliminated certain itemized deductions, reducing if not eliminating the benefit of itemizing in most situations. For those interested in itemizing, there are a few strategies to consider to reduce your tax burden through itemized deductions.
Charitable Contributions:
- The deductibility of each type of charitable contribution is limited based on a percentage of your adjusted gross income (AGI). Generally, cash donations are limited to 60% of your AGI and non-cash donations (i.e., personal property donated to qualified charities) are limited to 50% of your AGI. Donations of appreciated assets (i.e., stock) may be deducted at fair market value (limited to 30% of your AGI) and avoids the capital gains tax.
- A Donor-Advised Fund (DAF) gives you the ability to contribute a large amount now, but decide how and when your contribution is used. DAF contributions are limited to 60% of your AGI.
- Consider the timing of your charitable contributions. For example, “bunching,” or making both your 2024 and 2025 contributions in 2024, could put you over the standard deduction threshold in 2024 (providing a higher tax benefit) while allowing you to benefit from the standard deduction in 2025.
Medical Expenses:
Since the medical expense deduction is limited to amounts in excess of 7.5% of your AGI, “bunching” your medical expenses into one year may provide a higher tax benefit. If you are planning to itemize your medical expenses, try to schedule all appointments with time to receive and pay your balances prior to year-end.
LOWERING YOUR TAXABLE INCOME
There are several ways to reduce your taxable income without maximizing your deductions, but you may want to take advantage of both strategies depending on your situation.
Contribute to Tax-Advantaged Accounts:
Maximizing pre-tax/deductible contributions to your qualified retirement plans (i.e. 401(k)s, 403(b)s, Traditional IRAs, SEP IRAs, and Simple IRAs), cafeteria plans, HSAs, FSAs, etc., lowers your AGI. For potential state income tax savings (not Federal), consider contributing to a 529 College Savings Plan. Note that the setup and contribution deadlines for these plans and accounts vary, with deadlines including December 31, 2024, April 15, 2025, and even October 15, 2025.
Qualified Charitable Distributions (QCDs):
If you are age 70 ½ or older and have a Traditional IRA, you may consider making tax-free direct transfers (up to $100,000) from your IRA to eligible charities. If you are currently taking Required Minimum Distributions (RMDs), QCDs can satisfy your RMD and lower your taxable income. QCDs do not increase your AGI, thus will not adversely affect any AGI-related items (i.e. itemized deduction limitations, Medicare premiums, and taxable Social Security benefits).
INCREASING YOUR TAXABLE INCOME
While this may sound counterintuitive, increasing your taxable income may be appropriate when taking a multi-year approach. If 2024 happens to be a lower-income year, delaying the previously mentioned “bunching” of charitable contributions or medical expenses to reduce your taxable income in a higher-income year may yield a greater tax benefit. Likewise, considering a Roth IRA conversion, or selling investments to realize a capital gain may be more tax-efficient in a lower-income year.
Please reach out to your CPA, our Tax & Financial Planning team, or your Wealth Management Advisor with any questions you may have about how these strategies may benefit your tax situation.
Author: Angela Pound, CPA | Tax Manager
Written: October 30, 2024