As the end of 2024 approaches, now is the time for individuals to fine-tune their financial strategies and explore opportunities for tax efficiency. From maximizing retirement contributions to tax loss harvesting and AMT considerations, understanding these strategies can help reduce tax liabilities and establish a foundation for future financial health. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
- Retirement Contributions – Maximizing contributions to retirement accounts can reduce taxable income. For 401(k) plans, the 2024 contribution limit is $23,000, with an additional $7,500 allowed as a catch-up for those over 50. IRAs have a contribution limit of $7,000, with an extra $1,000 catch-up for those over 50. Reaching these contribution limits by year-end can reduce a current tax burden while building retirement savings.
- Tax-Loss Harvesting – Individuals can offset capital gains by selling underperforming investments in taxable accounts. This approach allows losses to be realized, which can then offset gains dollar-for-dollar and potentially reduce ordinary income by up to $3,000. Any unused losses may be carried forward to future tax years, providing ongoing tax benefits. A thorough portfolio review, particularly in December, can help identify potential losses to reduce tax liability effectively.
- Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) – For those with Flexible Spending Accounts (FSAs), remember that most FSAs have a “use it or lose it” policy, meaning any funds left unspent by year-end (or by the grace period) will be forfeited. Health Savings Accounts (HSAs) offer more flexibility, with 2024 contribution limits set at $4,150 for individuals and $8,300 for families, plus a $1,000 catch-up for those over 55. HSAs provide a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and qualified withdrawals for medical expenses are also tax-free.
- Required Minimum Distributions (RMDs) – Individuals ages 73 or older need to meet their RMD requirements to avoid penalties, which can reach up to a 50% excise tax on the amount not withdrawn. Even if the funds are not needed for living expenses, RMDs can be reinvested in a taxable account. Being mindful of the RMD deadline, generally December 31, can help avoid last-minute surprises and costly penalties.
- Estate and Gift Planning – The estate and gift tax exemption currently allows individuals to transfer up to $13.61 million ($13.99 million in 2025) during their lifetime or at death without incurring federal estate or gift taxes. This elevated exemption is set to sunset at the end of 2025, potentially reverting to a lower limit. For those with significant assets, making larger gifts now can help maximize tax-efficient wealth transfers before the exemption decreases. Separately, the annual gift tax exclusion permits tax-free gifts of up to $18,000 per recipient each year without impacting the lifetime exemption. This exclusion is adjusted annually for inflation and is not affected by the sunset provision. Reviewing estate planning documents, including wills, trusts, and beneficiary designations, can also help ensure plans are current and aligned with any recent personal or legal changes.
- Alternative Minimum Tax (AMT) Considerations – The Alternative Minimum Tax exemption amount for 2024 is $85,700 for individuals, with the exemption phasing out at incomes of $609,350. For married couples filing jointly, the exemption is $133,300, phasing out at $1,218,700. High-income individuals will want to assess their tax situation to determine if they are near the AMT threshold, as this separate tax system disallows certain deductions, including state and local taxes, potentially resulting in a higher tax bill. Adjusting deductions and timing of income may help avoid triggering the AMT or reduce its impact.
- Income Tax Withholding and Estimated Payments – Individuals will want to review their withholding to ensure it aligns with their overall tax strategy. High-income earners, particularly those expecting a year-end bonus, may benefit from adjusting withholding to avoid potential underpayment penalties. Self-employed individuals and those receiving business distributions should also confirm that their quarterly estimated payments are on track to meet their 2024 tax liability.
- Mutual Fund Capital Gains Distributions – Mutual funds held in taxable accounts often distribute capital gains in December, which can lead to an unexpected tax bill. Investors should check their mutual fund’s capital gain distribution schedule and consider timing any new fund purchases to avoid buying in just before a distribution, as this could result in an immediate taxable event.
- Asset Location and Tax Efficiency – High-net-worth individuals should examine their portfolio’s asset allocation across taxable, tax-deferred, and tax-free accounts. Holding income-generating assets in tax-deferred accounts, growth assets in taxable accounts, and high-appreciation assets in tax-free accounts like Roth IRAs can help optimize tax efficiency over time. Reviewing asset location with a CPA ensures that the strategy aligns with long-term financial goals.
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Year-end tax planning is an opportunity to reduce this year’s tax liability and to position your finances for long-term growth and security. As the closing weeks of the year are unfolding, now is the time to implement these planning ideas. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.