Tax-Saving Strategies For the End of 2024
With the end of the year fast approaching, you don't want to miss out on the last few opportunities to save on taxes this year! There are three strategies that may work for you.
1. Max Out Your Retirement Account Contributions
Maximizing contributions to retirement accounts, like IRAs and 401(k)s, can help you save for retirement AND reduce your taxable income.
The maximum amount changes over time and based on your age. If you’re under 50, in 2024, you can contribute up to $7,000.00 to an IRA and up to $23,000.00 to a 401(k). If you’re 50 or older, your 2024 limits are up to $8,000.00 to an IRA and up to $30,500.00 to a 401(k).
These contributions can help you save on taxes because the contributions is not included in when calculating your tax burden. For example, if you have an annual salary of $70,000 and made the maximum contribution for those under 50 of $7000.00 to your 401(k), your income tax would be calculated using $63,000 as your salary instead of $70,000 because of those 401(k) contributions.
Also, if your employer offers matching contributions, be sure to take full advantage of this.
The aggregate maximum amount you and your employer can contribute to your 401(k) is the earlier of either 100% of your salary or $69,000, if you’re under 50; and $76,500, if you’re over 50.
It’s important to note that this tax strategy does not work with Roth IRAs. That’s because Roth IRAs are funded with money that has already been taxed.
If you have a Health Savings Account, you can deduct your contributions up to $4150 on a single plan or $8,300 if you’re married and under the age of 55. These limits are increased by $1,000.00 if you’re 55 or older.
2. Harvest Capital Losses
If you’re expecting to have to pay capital gains taxes this year, you may want to look into loss harvesting. Which involves selling underperforming investment assets at a loss to reduce your taxable income.
This is a gross oversimplification, but this happens because your taxable capital gains income is calculated by subtracting your capital gains from your capital losses. What remains is then used to calculate your tax burden. The larger your losses compared to your gains, the less taxable income there will be.
If you’re expecting to realize more losses than gains, don’t worry. Those losses can be carried over into future tax years, but only $3,000.00 at a time. So if you end up with $6,000.00 in capital losses in 2024, you can carry forward a maximum to $3,000.00 of those losses into the tax years of 2025 and 2026.
When executing this strategy, you should be careful to avoid what the IRS calls a “wash sale.” A wash sale occurs when an asset is sold at loss and within 30 days from the sale a substantially identical asset is purchased. It does not matter if the wash sale was unintentional, if a wash sale occurs, you will not be allowed to claim the loss on your current year tax return. So be sure to consult with your financial advisor & CPA before executing any trades.
3. Accelerate or Defer Your End-of-Year Income
If you expect to be in a lower tax bracket next year, you can lower your taxes by postponing some of your business activities into next year. If you run a business, this could look like waiting until late December to send invoices that will be paid in the new year.
That way a smaller portion of your income is taxed at the higher marginal tax bracket you’re in this year. The income from the invoices you deferred will be collected the next year and the taxes will be calculated at a lower marginal rate you’re expecting. The opposite is also true. If you’re expecting to be in a higher tax bracket next year, you can save on taxes by collecting as much income as possible before the end of the year.
TealAcre’s Here to Help!
You read this far because you’re care about your minimizing your tax burden and keeping more of your hard-earned income. And you’re interested in keeping your income you earned it and it’s how you provide for your family, maintain your business, and take care of your employees should something happen to you. Instead of going at it alone, let TealAcre help you get the clarity and peace of mind you’re looking for. To contact us you can:
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