As the year draws to a close, there is still a little time remaining to make strategic tax decisions that could reduce your tax liability for 2024. Here are eight strategies you can use as a guide to help minimize taxes and set yourself up for financial success in the new year.
Take Required Minimum Distributions (RMDs)
- If you are 73 or older, withdraw your RMDs from tax-deferred accounts before year-end.
- First-time RMD takers in 2024 have until April 1, 2025; however, if you wait to take a distribution until after December 31, 2024, you will have two distributions in 2025.
- Missing the deadline could result in a 25% penalty.
- Plan ahead and adjust estimates or withholdings if RMDs might push you into a higher tax bracket for the following year.
Make Tax-Free Gifts to Loved Ones
- Gift up to $18,000 per person ($36,000 if married) to reduce future estate taxes.
Optimize Charitable Contributions
- Maximize deductions by donating cash to qualified charities (up to 60% of your adjusted gross income). Consider donating appreciated long-term investments to avoid capital gains taxes (up to 30% of AGI). For those 70½+, use Qualified Charitable Distributions (QCDs) to donate up to $105,000 from your IRA without increasing taxable income.
Reduce Capital Gains with Tax-Loss Harvesting
- Offset realized capital gains by selling investments with losses by year-end.
- If losses exceed gains, you can offset up to $3,000 of ordinary income and carry over excess losses to future tax years.
Maximize Contributions to Tax-Deferred Savings Accounts (by the April tax filing deadline)
- Health Savings Accounts (HSAs): Contribute $4,150 for individuals, $8,300 for families.
- Traditional IRAs: Contribute up to $7,000 ($8,000 for 50+), though deductions may phase out depending on income.
Consider Roth IRA Contributions
- Contribute after-tax dollars to a Roth IRA for future tax-free withdrawals. Contribution limits are $7,000 or $8,000 for age 50+. Income limits apply: $161,000 for singles, $240,000 for married couples.
Consider a Roth IRA Conversion
- Convert pre-tax savings from a traditional IRA to a Roth IRA if you’re above Roth contribution limits. Avoid large tax bills by converting just enough to stay within your current tax bracket.
After-Tax Contributions and a Roth Rollover
- Max out your 401(k) contributions and add after-tax dollars up to the $69,000 limit ($76,500 if 50+). Convert or roll over the after-tax contributions into a Roth IRA for potential tax savings. If workplace restrictions apply, consider a backdoor Roth IRA strategy.
HAVE QUESTIONS?
If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Darien) or email us at info@cironefriedberg.com.
