Tax-Saving Strategies to Consider Before the Year Ends

As the year winds down, the final days present a valuable opportunity to reduce your tax burden and strengthen your financial position. Proactive tax planning now may help you maximize savings while staying on track with long-term goals. Likewise, let’s explore practical strategies to optimize your tax savings and set yourself up for success before December ends.

Maximize Retirement Contributions

Retirement accounts offer a dual advantage: Reducing your current taxable income and building long-term financial security.

401(k) Contributions: For 2024, you can contribute up to $23,000, with an additional $7,500 catch-up contribution if you’re 50 or older.
IRA Contributions: For 2024, the limit is $7,000, plus a $1,000 catch-up. Choose between traditional and Roth IRAs based on your tax strategy.

Take Advantage of Tax-Advantaged Accounts

Maximizing contributions to tax-advantaged accounts before year-end can boost savings.

Health Savings Account (HSA): Contribute up to $3,850 for individuals or $7,750 for families, with an additional $1,000 catch-up for those 55 and older.
Flexible Spending Account (FSA): FSAs follow a “use-it-or-lose-it” rule, so use the remaining funds on eligible expenses or check with your employer for carryover options. IRS FSA

Charitable Contributions

Supporting charities not only benefits your community but can also reduce your taxable income.

Donating Cash or Goods: Contributions to qualified organizations can help reduce taxable income, including cash, goods, and appreciated assets like stocks.
Donor-Advised Funds: By bunching large contributions in one year, you can exceed the standard deduction threshold. You may also gain a higher tax benefit while spreading donations to charities over time.
Qualified Charitable Distributions (QCDs):
- Tax-Free Gifts: Retirees aged 70½ or older can donate up to $100,000 tax-free from an IRA to a qualified charity.
- Dual Benefits: QCDs count toward RMDs, lowering taxable income and providing a tax-saving opportunity for retirees.

Harvest Tax Losses

Tax-Loss Harvesting: Offset taxable capital gains by selling underperforming investments at a loss, reducing your overall tax liability. Stay mindful of the wash-sale rule which prohibits claiming losses if you repurchase the same or substantially identical securities within 30 days.

Rebalancing Your Portfolio:

- Year-end is an ideal time to review and adjust your investment accounts.
- Ensure your portfolio aligns with your financial goals and risk tolerance.

Review Potential Deductions and Credits

Education Credits: Take advantage of tax credits like the American Opportunity Tax Credit or Lifetime Learning Credit to offset higher education expenses.
Energy-Efficient Home Improvements: Claim tax credits for installing energy-efficient upgrades like solar panels, or appliances.
State and Local Taxes (SALT): The SALT deduction allows taxpayers who itemize to subtract certain state and local taxes from their federal taxable income. However, the Tax Cuts and Jobs Act imposed a cap of $10,000 on the SALT deduction.
Medical Expenses: Deduct medical costs that exceed 7.5% of your adjusted gross income (AGI).

Consider Timing Strategies

Deferring Income: If feasible, delay income (ex. year-end bonuses) to the following year to reduce your current taxable income.
Accelerating Expenses: Prepay deductible expenses like mortgage interest or property taxes before December 31st to increase deductions for the current year.

Don’t Overlook Required Minimum Distributions (RMDs)

RMD Rules: Retirees aged 73 and older must take Required Minimum Distributions (RMDs) from retirement accounts to avoid penalties of up to 25% of the missed distribution.

Consult a Financial Professional

Year-end tax planning can be complex, but personalized advice may optimize results. A financial advisor can align tax-saving methods to fit your unique situation and help you navigate intricate financial decisions and avoid costly mistakes. Expanding your year-end tax-saving strategies is key to reducing your tax burden and strengthening your financial foundation.

Need guidance with year-end tax planning? Contact the knowledgeable financial advisors at Investor’s Resource. We can help optimize your savings and work to keep you on track with your financial goals.

*Investor’s Resource, RFG Advisory, and PCS do not offer tax or legal services. Always consult an attorney or tax professional regarding your particular legal or tax situation.