As the year comes to a close, there are still strategic moves you can make to reduce your tax bill. Year-end tax planning allows you to take advantage of opportunities that expire on December 31st. Here are essential strategies to maximize your savings.
Maximize Retirement Contributions
Contributing to retirement accounts reduces taxable income:
- 401(k) contributions: Up to $23,000 for 2024 ($30,500 if 50+)
- Traditional IRA: Up to $7,000 ($8,000 if 50+)
- SEP-IRA: Up to 25% of compensation or $69,000
- Solo 401(k): High contribution limits for self-employed
Deadline: 401(k) contributions must be made by December 31st. IRA contributions can be made until tax filing deadline (April 15th).
Tax Loss Harvesting
Sell investments at a loss to offset capital gains:
- Offset capital gains with capital losses
- Up to $3,000 can offset ordinary income
- Unused losses carry forward to future years
- Be aware of wash sale rules (30-day rule)
Strategy: Review your investment portfolio before year-end and consider selling losing positions to harvest tax losses.
Bunching Deductions
Group deductible expenses into one tax year:
- Medical expenses (must exceed 7.5% of AGI)
- Charitable contributions
- Property taxes
- State income taxes
Strategy: If you're close to itemizing, consider accelerating deductions into the current year or deferring them to the next year.
Timing Income and Expenses
Control when income and expenses are recognized:
Defer Income
- Delay invoicing until January (if self-employed)
- Postpone bonus payments
- Delay retirement plan distributions
Accelerate Expenses
- Pay business expenses before year-end
- Make charitable contributions in December
- Prepay property taxes (if allowed)
- Purchase equipment before December 31st
Charitable Giving Strategies
Maximize charitable deduction benefits:
- Cash donations: Must be made by December 31st
- Donated securities: Avoid capital gains tax on appreciated assets
- Donor-advised funds: Contribute now, grant later
- Qualified charitable distributions: From IRA if 70½+
Note: Keep receipts and acknowledgments for all charitable contributions.
Flexible Spending Accounts (FSAs)
Use FSA funds before they expire:
- Check your FSA balance before year-end
- Schedule medical appointments
- Purchase eligible medical supplies
- Some plans allow carryover or grace period
Deadline: Most FSAs expire on December 31st, but check your plan's specific rules.
Annual Gift Tax Exclusion
Take advantage of the annual gift tax exclusion:
- $18,000 per recipient for 2024 ($36,000 for married couples)
- Gifts don't count against lifetime exemption
- Must be completed by December 31st
- No gift tax return required if under exclusion amount
Business Equipment Purchases
Take advantage of Section 179 and bonus depreciation:
- Purchase equipment before year-end
- Section 179 allows immediate expensing
- Bonus depreciation for new equipment
- Can significantly reduce current year taxes
Health Savings Accounts (HSAs)
Maximize HSA contributions:
- Individual: Up to $4,150 for 2024
- Family: Up to $8,300 for 2024
- Additional $1,000 if 55 or older
- Contributions reduce taxable income
- Can be made until tax filing deadline
Education Expenses
Maximize education-related tax benefits:
- Pay tuition before year-end for current year credit
- Contribute to 529 plans (state tax benefits)
- Pay student loan interest
- Consider education savings bonds
Estimated Tax Payments
Review and adjust estimated tax payments:
- Ensure you've paid enough to avoid penalties
- Make final payment before January 15th
- Adjust for income changes
- Consider increasing payments if income increased
Review Your Tax Situation
Before year-end, assess your overall tax situation:
- Project your tax liability
- Identify opportunities to reduce taxes
- Plan for any tax law changes
- Consult with a tax professional
Get Professional Help
Year-end tax planning can be complex. A tax professional can:
- Analyze your specific situation
- Identify all available strategies
- Help implement strategies correctly
- Ensure compliance with tax laws
- Maximize your tax savings
At JVS Tax Services, our experienced tax professionals can help you develop a comprehensive year-end tax planning strategy tailored to your specific situation. Don't wait until tax season—start planning now to maximize your savings. Contact us today for a consultation.