As we enter the final quarter of the year, it’s the perfect time to take a closer look at your finances and implement smart tax strategies. By planning ahead, you can reduce your tax liability and set yourself up for a financially successful year. Here are five key tax planning strategies to consider before year-end:
1. Maximize Retirement Contributions
Contributing to retirement accounts such as a 401(k) or IRA not only helps secure your future but also offers immediate tax benefits. For 2024, you can contribute up to $22,500 to a 401(k) and $6,500 to an IRA, with an additional catch-up contribution if you’re over 50. These contributions may lower your taxable income, helping you save on taxes now while investing for later.
2. Take Advantage of Tax-Loss Harvesting
If you have investments that have underperformed this year, you may be able to use those losses to offset capital gains or even up to $3,000 of your ordinary income. Tax-loss harvesting can be a valuable strategy for reducing your taxable income while maintaining your investment strategy. It’s important to consult with a tax professional to ensure you’re following the rules properly.
3. Review Your Withholding and Estimated Taxes
If you’re self-employed or have multiple sources of income, it’s crucial to ensure your tax withholding or estimated payments are accurate. Underpayment penalties can be avoided by adjusting your withholding or making a fourth-quarter estimated payment if necessary. This is a great time to review your tax situation to avoid any surprises come tax season.
4. Make Charitable Donations
Giving back through charitable donations not only benefits the causes you care about, but it can also reduce your taxable income if you itemize deductions. Be sure to keep records of your donations, whether they’re cash, goods, or securities. For 2024, you may be able to deduct up to 60% of your adjusted gross income in cash donations to qualifying organizations.
5. Plan for Major Life Changes
Have you experienced major life changes this year, such as marriage, the birth of a child, or a home purchase? These events can impact your tax situation. For example, a new child may qualify you for additional tax credits, while buying a home could provide mortgage interest deductions. Reviewing these changes with a tax professional now can help you plan for any tax implications and maximize your benefits.
Final Thoughts
Tax planning isn’t just something to think about in April. Implementing these strategies before year-end can make a big difference in your tax bill. By reviewing your income, expenses, and financial goals now, you can ensure you’re taking advantage of every opportunity to minimize your taxes and maximize your savings. If you’re unsure where to start, a tax planning session with a professional can provide personalized guidance to help you make the most of your tax strategy.
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