As we approach year-end, strategic tax planning becomes crucial. The decisions you make in these final weeks can significantly impact your tax liability when April rolls around. Here are key strategies to consider before December 31st.
Maximize Retirement Contributions
One of the most effective ways to reduce taxable income is through retirement account contributions. For 2024, you can contribute up to $23,000 to a 401(k) or 403(b), with an additional $7,500 catch-up contribution if you’re 50 or older. Traditional IRA contributions (up to $7,000, plus $1,000 catch-up) can also provide immediate tax deductions if you meet income requirements.
Business owners with self-employment income should explore SEP-IRAs or Solo 401(k)s, which allow much higher contribution limits based on net self-employment income.
Harvest Tax Losses
Review your investment portfolio for positions with unrealized losses. Selling these investments before year-end allows you to offset capital gains dollar-for-dollar. If your losses exceed gains, you can deduct up to $3,000 against ordinary income, carrying forward any remaining losses to future years.
Be mindful of the wash-sale rule: you cannot buy substantially identical securities within 30 days before or after the sale and still claim the loss.
Timing Income and Deductions
Depending on your circumstances, you may benefit from accelerating or deferring income and deductions:
Accelerate deductions if you expect to be in a higher tax bracket this year by:
- Making charitable contributions before December 31st
- Paying January mortgage payments in December
- Scheduling necessary medical procedures before year-end
- Prepaying state and local taxes (up to the $10,000 SALT cap)
Defer income if you’ll be in a lower bracket next year by:
- Delaying year-end bonuses until January
- Postponing invoicing for self-employed individuals
- Timing asset sales strategically
Bunch Charitable Deductions
With the higher standard deduction ($14,600 for single filers, $29,200 for married filing jointly in 2024), many taxpayers no longer itemize. Consider “bunching” two or more years of charitable contributions into one year using a donor-advised fund. This strategy can push you over the standard deduction threshold, providing tax benefits while maintaining your charitable giving timeline.
Small Business Strategies
Business owners have additional opportunities:
Section 179 Deduction: Deduct up to $1,220,000 in qualifying equipment purchases made before year-end, subject to income limitations.
Bonus Depreciation: While being phased down, bonus depreciation still allows significant first-year write-offs for certain assets.
Expense Business Items: Purchase necessary supplies, equipment, or prepay expenses to reduce taxable income.
Don’t Forget Required Minimum Distributions
If you’re 73 or older, ensure you’ve taken your Required Minimum Distribution (RMD) from traditional IRAs and 401(k)s. The penalty for missing RMDs is steep—25% of the amount that should have been withdrawn.
The Value of Professional Guidance
While these strategies can generate substantial savings, tax planning is highly personal. Your optimal strategy depends on your income level, filing status, state residency, and financial goals. What works for one taxpayer might not benefit another. As an Enrolled Agent specializing in tax accounting, I can analyze your specific situation and implement strategies tailored to your circumstances. Don’t leave money on the table—contact me before year-end to discuss how these and other strategies can reduce your tax burden
