2024 Year-End Tax Tips

Here are some things to consider as you weigh potential tax moves between now and the end of the year.

1. Defer income to next year

Consider opportunities to defer income to 2025, particularly if you think you may be in a lower tax bracket
then. For example, you may be able to defer a year-end bonus or delay the collection of business debts,
rents, and payments for services. Doing so may enable you to postpone payment of tax on the income until
next year.

2. Accelerate deductions

You might also look for opportunities to accelerate deductions into the current tax year. If you itemize
deductions, making payments for deductible expenses such as qualifying interest, state taxes, and medical
expenses before the end of the year (instead of paying them in early 2025) could make a difference on your
2024 return.

3. Make deductible charitable contributions

If you itemize deductions on your federal income tax return, you can generally deduct charitable
contributions, but the deduction is limited to 50% (currently increased to 60% for cash contributions to
public charities), 30%, or 20% of your adjusted gross income (AGI), depending on the type of property you
give and the type of organization to which you contribute. (Excess amounts can be carried over for up to
five years.)

4. Bump up withholding to cover a tax shortfall

If it looks as though you will owe federal income tax for the year, consider increasing your withholding on
Form W-4 for the remainder of the year to cover the shortfall. Time may be limited for employees to request
a Form W-4 change and for their employers to implement it in time for 2024. The biggest advantage in
doing so is that withholding is considered as having been paid evenly throughout the year instead of when
the dollars are actually taken from your paycheck. This strategy can be used to make up for low or missing
quarterly estimated tax payments.

5. Save more for retirement

Deductible contributions to a traditional IRA and pretax contributions to an employer-sponsored retirement
plan such as a 401(k) can reduce your 2024 taxable income. If you haven’t already contributed up to the
maximum amount allowed, consider doing so. For 2024, you can contribute up to $23,000 to a 401(k) plan
($30,500 if you’re age 50 or older) and up to $7,000 to traditional and Roth IRAs combined ($8,000 if you’re
age 50 or older).* The window to make 2024 contributions to an employer plan generally closes at the end
of the year, while you have until April 15, 2025, to make 2024 IRA contributions.
*Roth contributions are not deductible, but Roth qualified distributions are not taxable.

6. Take required minimum distributions

If you are age 73 or older, you generally must take required minimum distributions (RMDs) from traditional
IRAs and employer-sponsored retirement plans (special rules may apply if you’re still working and
participating in your employer’s retirement plan). You have to make the withdrawals by the date required —the end of the year for most individuals. The penalty for failing to do so is substantial: 25% of any amount
that you failed to distribute as required (10% if corrected in a timely manner).

7. Weigh year-end investment moves

You shouldn’t let tax considerations drive your investment decisions. However, it’s worth considering the
tax implications of any year-end investment moves that you make. For example, if you have realized net
capital gains from selling securities at a profit, you might avoid being taxed on some or all of those gains by
selling losing positions. Any losses over and above the amount of your gains can be used to offset up to
$3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to
reduce your taxes in future years.

 

Please Read – Disclosure Statement

This blog post is for informational purposes only and does not constitute investment advice, an offer to sell, or a solicitation of an offer to buy any security. The opinions expressed herein are those of the author as of the date of writing and are subject to change without notice.

CFA is an SEC-registered investment adviser. Registration with the SEC does not imply a certain level of skill or training. A copy of CFA’s current written disclosure statement discussing our advisory services and fees is available upon request.

Investing involves risk, including the potential loss of principal. Past performance does not guarantee future results. The investment strategies and types of securities discussed may not be suitable for all investors.

Any performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.

Readers should not assume that any investments, strategies, or securities discussed were or will be profitable. Readers should conduct their own due diligence and consult with a qualified financial professional before making any investment decisions.

This blog and its content are subject to change without notice. CFA and the author are not responsible for the accuracy, completeness, or timeliness of the information provided.

 

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Learn more about how this relates to your current financial plan? Give us a call at (410) 823-5442 or email invest@peakeadvisors.com.

Chesapeake Financial Advisors is a fee-only financial planning, investment advisory, and tax planning firm with offices in Towson, Columbia, and Frederick, Maryland.

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