As we approach the end of the year, it's time to review tax strategies that could benefit your financial situation. While not an exhaustive list, here are a few ideas you may be able to use:
One approach is to explore opportunities for deferring income to the following year, especially if you anticipate being in a lower tax bracket. This could involve postponing year-end bonuses or delaying the collection of various payment for services, effectively pushing the taxes on these items into the next year.
Conversely, you might find it advantageous to accelerate deductions into the current tax year. If you itemize deductions, paying for qualifying expenses such as interest, state taxes, and medical costs before the year's end could help you lower 2024 taxes.
Charitable contributions can also play a role in your tax strategy. If you itemize deductions on your federal income tax return, you can generally deduct charitable contributions, subject to certain limitations based on your adjusted gross income and the type of contribution.
If you're facing a potential tax shortfall, consider increasing your withholding on Form W-4 for the remainder of the year. This strategy can be particularly useful to compensate for low or missing quarterly estimated tax payments, as withholding is treated as if it were paid evenly throughout the year.
Boosting your retirement savings can be another way to reduce your taxable income. Deductible contributions to traditional IRAs and pretax contributions to employer-sponsored retirement plans like 401(k)s can lower your 2024 taxable income. Be sure to check the contribution limits and make contributions before the respective deadlines.
For those aged 73 or older, it's important to remember to take required minimum distributions (RMDs) from traditional IRAs and most employer-sponsored retirement plans. Failing to do so can result in substantial penalties, so be sure you make the necessary withdrawals by the required date.
Lastly, while tax considerations shouldn't be the primary driver of investment decisions, it's worth evaluating the tax implications of any year-end investment moves. For instance, if you've realized net capital gains from selling securities at a profit, you might consider offsetting these gains by selling losing positions. Any excess losses can be used to offset ordinary income (up to $3,000) or carried forward to reduce future tax liabilities.
At John Piershale Wealth Management we implement tax planning regularly for our clients. If we can be of service, please reach out.