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You can drink eggnog now and curl up by the fire, but before you know it tax time they will be on us. The end of the year is a great time to review your taxes in preparation for filing 2024 tax returnespecially if you expect your finances to change dramatically in 2025.
Several tax strategies can help you reduce your tax and help you get more tax refunds, but you need to act soon, because some steps need to be prepared in order to complete on 31 Dec. 2024.
Read more: Watch Out for Tax Changes If You Earn Money from Venmo, Cash App or Paypal This Year
It’s worth taking the time now to review your taxes, because a little effort can pay off big later. Read on for year-end tax tips to prepare for the upcoming tax season.
1. Review your salary if you are withholding tax
The US has a “pay as you go” tax system, which is why your employer withholds money from your paycheck and Volunteers must pay taxes on a quarterly basis. Failure to pay enough tax during the year can result in penalties at tax time.
Your employer records the withheld amount on your paycheck and your W-4 tax form, which includes your record of withholding and tax deductions. The end of the year is a wonderful time Review your W-4 and your withholding decide if you want to change.
IRS’ A Tool to measure Tax Deductions allows you to estimate your returns and tax refunds to update your W-4 form. You can send updates Form W-4 to your company at any time, and your employer must initiate your changes at the beginning of the first pay period, which is 30 days or more after you submit your W-4.
2. Sell any losing stocks to reduce your profit
It’s been a bumper year for stocks in 2024 — the S&P 500 index is up 30% — but there are plenty of stocks that have lost money this year. One bright spot of the stock crash is the opportunity to experiment.”harvest loss tax.”
This tax method works by recognizing losses or selling your stocks and assets that have lost value, to offset other gains you may have made. For example, if you made a profit of $25,000 on a real estate sale in 2024 but lost a lot of money in a difficult price (eg Intel), you can sell your securities and deduct the capital loss from that investment against your capital gains. If you have a $25,000 capital loss, you’ll deduct the $25,000 you gained from the sale of the property to offset the tax.
Capital gains include any money you get from selling assets, such as stocks, real estate, cars, property or any other tangible asset, but you must sell the assets to realize the loss and gain.
3. Increasing contributions to retirement accounts
Retirement income if 401(k) account and IRAs offer one of the most tax-deductible benefits because you can reduce your taxes by building a nest egg in the future. If you can, add as much money as you can to each retirement account before the end of the year.
The Limit deductions for 401(k) contributions for 2024 taxes is $23,000, and it does no calculate the employer’s contributions. An employee in the 24% tax bracket can cut nearly $5,000 in taxes just by saving for the future. Maximize your regular 401(k) contributions by the end of 2024 to maximize your retirement withdrawals.
If you are over 50, you can contribute more to your 401(k). “helpful” contributions. up to $7,500 per year (or $30,000 in total) in 2024, if permitted by the 401(k) plan. You don’t need to be “behind” in your 401(k) contributions to make additional contributions to your account.
For IRAs, the maximum taxable contribution in 2024 is $7,000, or $8,000 if you’re age 50. The amount you can take out from taxes depends on both your income and whether or not you have a paid job. retirement plan.
4. Make your home more energy efficient
Thank you for Inflation Reduction Act of 2022there are big incentives to make your home “green” in 2024. The law boosted the amount of tax money you can get to increase your home’s energy efficiency. For this tax year, a Strong credit for sleeping – which pays back the costs of installing solar panels, geothermal heat pumps, fuel cells and battery storage – is still at 30%.
Tax credits have a bigger impact on your tax bill than deductions. Deductions reduce the amount of your income, taxes directly reduce the amount of taxes you owe to the IRS.
Installing a solar system, wind turbine or ground source heat pump now could save you 30% of the cost if it ends on Jan. 1, 2025. average cost of solar installation and $11,563. If you were to improve your home in 2024, you would drop $3,467 on your taxes.
Energy efficiency taxes are not limited to energy efficiency. Simply install new, Energy Star qualified furnaces and boilers they can also reap tax revenue, albeit smaller than other powers. Be sure to check the manufacturer’s certification document, as not all Energy Star certified products are eligible.
5. Can you delay a bonus or year-end payment?
It’s not always easy to delay a payment from your employer, but if you received a year-end bonus and you’re looking to reduce your income in taxes as much as possible this year, consider asking your company to pay you in January.
Similarly, if you are self-employed or a contractor and want to reduce your income in 2024, consider delaying your invoices until December so that you don’t get paid until January. You’re just delaying paying taxes on that money until your 2025 taxes are due, so you’ll need to work out whether this year or the next would be a good year to get the money.
6. Donate to charity now if you want more tax deductions
If you claim your tax deductions and want to donate to causes and groups you support, do so before the end of the year to effectively reduce your income in 2024. Most taxpayers can make a charitable donation up to 50% of their income.
Before paying, make sure that your money will be tax-deductible by checking An IRS tax collector who does not pay taxes. All legal and non-profit organizations will also have a tax identification number that identifies them as tax exempt.
7. Check the minimum distributions required from IRAs and 401(k) accounts.
US tax law requires Americans to start taking money from their retirement accounts at or after a certain age. Beginning in 2023, the SECURE 2.0 Act raises the retirement age from 72 to 73, for those who turned 72 after Dec. 31, 2022.
This distribution is suitable for 401(k) plans, traditional IRAs, profit-sharing plans and pensions. They are no requirements for Roth IRAs while the owner is alive.
Required minimum distributions, or RMDs, are calculated by adding up the total amount in your retirement account and dividing by the IRS expected life expectancy. The Securities and Exchange Commission provides a a simple calculator which includes the latest IRS life expectancy tables.
Your retirement plan administrator must follow the tax rules for RMDs, so it’s up to you to make sure you’re getting the right amount. If you don’t meet your RMD limit, you will face the following severe IRS penalty around. The tax rate on RMD defaults has been 50% in the past, but the SECURE 2.0 Act reduces that penalty to 25%, and up to 10% if the RMD is made within two years.
However, if you need to withdraw $20,000 in 2024 but receive $10,000, you may be at risk of $2,500. It’s a good idea to double-check your RMD for 2024 and withdraw more if needed.
8. Consolidate your medical bills into one year
Medical expenses can be a big deduction for many taxpayers, but the IRS only allows you to deduct expenses that exceed 7.5% of your AGI. For example, if your AGI is $50,000, and you spent $5,000 on medical expenses, you can deduct $1,250 ($5,000 – ($50,000 x 7.5%)) from your income.
For that reason, it may be beneficial to spread all of your major medical expenses over one year. These costs may include surgeries, preventive care, hospital visits, dental care, prescription drugs, glasses, hearing and mental health aids, and travel costs to and from providers.
If you’re approaching 7.5% of AGI on medical expenses this year, consider buying more health-related products in late December. Straighten your teeth, buy those new glasses or schedule elective surgeries by the end of 2024, and you’ll double your medical deductible.
Similarly, if you’re not close to 7.5% of AGI spending on medical expenses in 2024, hold off on any health-related purchases until January when they can be more beneficial on next year’s taxes.
9. Manage your business expenses
If you are self-employed or self-employed, deductions for your business expenses it can save you a lot of money in taxes. Based on your professional expenses already this year, you can consider prepaying your expenses for next year before the end of 2024 to reduce your taxes.
For example, instead of buying things one month at a time, you can order and pay in December 2024 for things you will use for several months in 2025. The discount period will depend on whether you use the cash flow method. or accrual basis, but raising future business expenses for the next year is a time-tested method of reducing your annual income.
It is very important to note that everyone’s taxes are different. Year-end tax advice may be helpful for you, but there is no “one size fits all” approach to tax preparation. Be sure to consult a tax professional before making any major tax decisions.
For more information on the 2024 tax season, see The amount of income and the standard deduction will change in 2025.
