Top Year-end Tax Planning Opportunities for 2024

The year is drawing to a close and this is the perfect time to review your financial situation and identify opportunities to optimize your tax situation. Thoughtful planning now can lead to significant tax savings and financial advantages as you enter the 2025 tax season. Here are 8 key strategies to consider:

1. Maximize Retirement Contributions

Contributing to tax-advantaged retirement accounts is an effective way to reduce taxable income. Before the year ends, ensure you’ve maximized contributions to the following accounts:

• • 401(k) Plans: The contribution limit for 2024 is $23,000, with an additional $7,500 catch-up contribution allowed if you are 50 or older.
  • IRAs: You can contribute up to $7,000 to a traditional or Roth IRA, with a $1,000 catch-up contribution for those aged 50 or older.
  • SEP IRAs and Solo 401(k)s: Self-employed individuals may be eligible to contribute up to $69,000 based on their income. Consult with us to determine your specific limits.

2. Consider Roth Conversions

If you’re in a lower tax bracket this year or anticipate higher tax rates in the future, converting traditional IRA funds to a Roth IRA might be beneficial. This strategy allows you to pay taxes at current rates and enjoy tax-free growth and withdrawals in retirement.

3. Harvest Capital Gains and Losses

Review your investment portfolio to identify opportunities to balance capital gains and losses:

• • Tax-Loss Harvesting: Offset capital gains by selling underperforming investments to realize losses.
  • Capital Gains Planning: If you’re in the 0% long-term capital gains tax bracket, you might consider selling appreciated assets to lock in gains without tax liability.

4. Leverage Charitable Contributions

Giving to charity not only supports causes you care about but can also provide valuable tax deductions:

• • Qualified Charitable Distributions (QCDs): If you’re 70½ or older, consider making donations directly from your IRA to a qualified charity to satisfy Required Minimum Distributions (RMDs) while avoiding taxable income.
  • Donor-Advised Funds: Contribute to a donor-advised fund to receive an immediate deduction while retaining flexibility and control over the timing of charitable grants.
  • Bunching Contributions: If your itemized deductions are close to the standard deduction threshold, combining multiple years of charitable contributions into one year can increase the tax benefit.

5. Review Your Business Tax Strategies

For business owners, year-end planning can reduce your tax liability and position your business for success:

• • Section 179 and Bonus Depreciation: Invest in new equipment or technology to take advantage of immediate deductions. Bonus Depreciation is limited to 60% of the cost of qualifying property for 2024.
  • Qualified Business Income (QBI) Deduction: Evaluate strategies to maximize the 20% deduction for pass-through entities.
  • Pass Through Entity Tax (PTET): Work around the $10,000 individual state and local tax limit by paying state income taxes at the entity level (not the owner level). This tax is fully deductible on your business return, thus avoiding the SALT cap. You then receive a credit or reduction on your personal state income tax liability for taxes already paid by your business

6. Take Advantage of Energy Tax Credits

The Inflation Reduction Act offers expanded tax credits for energy-efficient home improvements and clean energy investments:

• • Residential Clean Energy Credit: Claim up to 30% of the cost for solar panels, battery storage, and other renewable energy systems.
  • Energy-Efficient Home Improvements: Deductions are available for improvements like new windows, doors, insulation, and HVAC systems.

7. Revisit Health Savings Accounts (HSAs)

Contributions to an HSA are tax-deductible, and withdrawals for qualified medical expenses are tax-free:

• • The contribution limit for 2024 is $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution for those aged 55 or older.
  • If you’re eligible, max out your contributions before year-end to secure tax savings.

8. Plan for Tax Law Changes

Staying ahead of potential changes to tax laws is crucial. Although this may not affect your 2024 tax position, 2025 has the potential to see sweeping changes to current tax laws:

• • Expiration of Provisions: Many provisions from the Tax Cuts and Jobs Act (TCJA) are set to sunset after 2025. It’s wise to keep up to date on any new tax bills proposed or passed so that you can plan ahead for changes in the tax law. With a new administration taking over in January 2025 there is the potential for new developments in the tax law horizon.

Partner with us for Tailored Advice

Every financial situation is unique, and effective tax planning requires a customized approach. Our team is here to help you navigate the complexities of the tax code and identify opportunities specific to your circumstances. Please contact us to schedule a tax planning review with our team to ensure you’re fully prepared for 2025 and beyond. Appointments can be scheduled online by visiting our homepage at www.ongandcompany.com.