Year-End Tax Planning Individuals: Maximize Your Savings

2024 is wrapping up, and while holiday planning might be top of mind, it’s also the perfect time for some tax-saving magic. With a few smart moves before December 31, you can shrink your tax bill, boost your savings, and step into 2025 with confidence—without the dreaded April surprise.

With the right strategies, you can shrink your tax bill and keep more of your hard-earned money.

Let's discuss how you can take advantage of these personal tax-saving strategies.

Year-end tax planning can help you minimize taxes, maximize deductions, and plan for the future.

Key strategies include maximizing retirement contributions, managing capital gains and losses, and leveraging deductions and credits.

Don’t forget to review your AGI, understand the Alternative Minimum Tax (AMT), and take advantage of tax-smart gifting opportunities before December 31 to optimize your financial outcomes.

Why Year-End Tax Planning Matters

Year-end tax planning allows you to take proactive steps to minimize your tax bill and maximize your savings.

By reviewing your financial situation before December 31, you can:

• Reduce taxable income: Use deductions and credits to lower the amount you owe.
• Avoid surprises: Prepare for April 15 with confidence by eliminating last-minute tax season stress.
• Plan for the future: Build a strong financial foundation for 2025 and beyond.

Determine Your Adjusted Gross Income (AGI)

Think of your Adjusted Gross Income (AGI) as the magic number influencing most of your tax situation. It determines your eligibility for tax credits and deductions—plus, it’s used to calculate additional taxes like the Net Investment Income Tax for higher earners.

• Calculate your AGI: Calculate your AGI to determine your eligibility for deductions and credits. Include income from all sources, such as self-employment, investments, and other earnings.
• Impact of additional income: Be aware of how extra income might affect your eligibility for certain tax benefits.
• Review withholding: Ensure you're not overpaying or underpaying taxes by reviewing your pay stubs and current withholding status.

Plan for Estimated Tax Payments and Local Taxes

Estimated tax payments throughout the year are essential for self-employed individuals or those with significant non-wage income to avoid penalties.

• Calculate your estimated tax payments: These payments help you stay on top of your income tax liability and avoid a surprise bill come April.
• Review local income taxes: You may owe additional local income taxes depending on your state and municipality. Be sure to check your withholding and estimated payments to avoid underpayment penalties.

Consider the Alternative Minimum Tax (AMT) and Deductible Expenses

For some high earners, the Alternative Minimum Tax (AMT) is like an annoying surprise guest at your tax party—it overrides your usual deductions and increases your tax bill. Understanding how it’s calculated can help you avoid getting hit by it.

• Understand AMT calculations: Learn how the AMT is computed and its impact on your deductions and exemptions.
• Minimize AMT impact: Adjust your tax strategy to reduce the likelihood of being subject to the AMT.
• Review deductions: Be mindful of deductions that may be limited or disallowed under the AMT.

Maximize Retirement Contributions

Retirement savings plans are your best friend when it comes to tax savings. Here’s how to make the most of them before the year ends:

401(k) Contributions

• Maximize contributions to your employer-sponsored retirement plan. The contribution limit for 2024 is $23,000 ($30,500 if you're 50 or older). For full details, visit the IRS Website.
• Take advantage of employer-matching contributions to boost your savings.

IRAs and HSAs

• Open or contribute to an IRA: Consider funding a Traditional IRA, which can reduce your taxable income, or a Roth IRA, which grows tax-free for the future.
• Remember HSAs: If you have a high-deductible health plan, you can enjoy triple tax benefits by contributing to a health savings account (HSA).

Catch-Up Contributions

• If you're 50 or older, take advantage of higher contribution limits to boost your retirement savings.

Manage Capital Gains and Losses

Year-end is prime time to make smart investment moves that could lower your tax bill.

Whether you’re sitting on gains or losses, here’s how to turn those market swings into tax-saving opportunities:

• Harvest Tax Losses: Offset capital gains by selling underperforming investments. This strategy helps reduce your taxable income while setting you up for future growth. Learn more about Capital Gains and Losses on Investopedia.
• Rebalance Your Portfolio: Realign your investments to stay on track with your goals—and do it strategically to minimize taxes.
• Leverage the 0% Capital Gains Rate: If you fall into certain income brackets, you may qualify for the 0% tax rate on long-term capital gains.

Understand Capital Gains Tax and Fair Market Value

Capital gains tax plays a key role in year-end planning, primarily if you’ve sold investments or property during the year. Knowing how it works can help you make the most of available tax benefits.

• Short-term vs. long-term capital gains: Assets held for less than a year are taxed at your ordinary income rate, while long-term capital gains often enjoy lower rates.
• Fair market value: When gifting or donating appreciated assets, the fair market value at the time of the transaction determines your tax implications.

Pro Tip: If you’re considering donating stock or other assets, consult a tax professional to ensure you maximize the tax benefits.

Maximize Deductions, Credits, and Reduce Tax Liability

Deductions and credits are key to reducing your tax bill and are worth revisiting before year-end.

Be sure to review all deductible expenses that can lower your taxable income and increase your savings.

• Charitable donations: Give to qualified charities and ensure you have receipts for contributions. Consider donating appreciated stock for additional benefits.
• State and local taxes (SALT): If you haven't hit the $10,000 deduction cap, prepay property taxes or estimated state taxes to maximize deductions.
• Energy efficiency upgrades: If you’ve installed energy-efficient windows, doors, or HVAC systems, you may qualify for valuable tax credits. Check out Energy Star's Incentives to see what qualifies.

Tax-Smart Gifting Strategies and Estate Planning

Gifting can be one of the most satisfying ways to reduce your tax bill while helping loved ones or supporting your favorite causes. At the same time, it’s essential to consider estate and gift tax implications when planning long-term wealth transfers. Here’s how to make it count:

• Use the Annual Gift Tax Exclusion: You can give up to $17,000 per recipient in 2024 without triggering gift tax.
• Qualified Charitable Distributions (QCDs): If you’re 70½ or older, consider donating directly from your IRA to reduce your taxable income.
• Lifetime Gift Exemption: Gifts exceeding the annual exclusion count against your lifetime estate and gift tax exemption, helping you reduce your taxable estate.

By incorporating these strategies, you can pass on more wealth to your loved ones while minimizing taxes.

Plan for Life Changes

Major life events often come with tax implications, so factor these into your year-end planning.

• Marriage or divorce: Update your filing status and consider the impact on your tax brackets.
• New dependents: Claim credits like the Child Tax Credit or the Dependent Care Credit.
• Job changes: Review your W-4 to ensure the correct amount of taxes is withheld.

Bonus Section: Review Tax-Law Changes for 2025

Stay informed about upcoming tax changes to avoid surprises and seize new opportunities, especially regarding gift and estate tax.

For example, consider how potential changes could influence your decision to defer income into the next tax year.

• Tax brackets and rates: Adjust your income strategies based on potential changes to marginal rates.
• Expiration of provisions: Monitor the expiration of temporary tax credits and deductions.
• Retirement plan updates: Keep an eye on any new contribution limits or regulations.

FAQs About Individual Year-End Tax Planning

How can I reduce my taxable income?

Contribute to retirement accounts, take advantage of deductions like charitable giving, and use tax-loss harvesting to lower your taxable income.

Are IRA contributions deductible?

Traditional IRA contributions may be tax-deductible if you meet certain income limits and don't have access to an employer-sponsored plan.

What is Capital Gains Tax?

Capital gains tax applies when you sell an asset for more than its purchase price. The tax rate depends on how long you’ve held the asset and your income level.

How do state and local taxes affect year-end planning?

State and local income taxes (SALT) can significantly impact your tax liability. While the SALT deduction is capped at $10,000, prepaying property taxes or estimated state income taxes before December 31 can help you maximize deductions. Check your state’s specific rules, as they can vary.

Do I need to worry about state-specific tax deadlines?

Yes, some states have different deadlines for estimated payments or specific deductions. It’s essential to check with your state’s tax authority to avoid missing out on opportunities.

When is the deadline for charitable contributions?

Charitable contributions must be made by December 31 to count for the 2024 tax year.

What is Tax-Loss Harvesting and How Does It Save You Money?

Tax-loss harvesting involves selling investments that have decreased in value to offset gains from other investments, reducing your overall tax liability.

How Do Estimated Tax Payments Work?

Estimated tax payments are quarterly payments made by self-employed individuals or those with significant non-wage income to avoid underpayment penalties.

Call to Action

Don’t leave your savings on the table! Start planning your year-end tax strategy today and step into 2025 with confidence. Contact us for personalized advice!!