Here are some things to consider as you weigh potential tax moves before the end of the year.
Set aside time to plan
Effective planning requires that you have a good understanding of your current tax situation, as well as a reasonable estimate of how your circumstances might change next year.
There's a real opportunity for tax savings if you'll be paying taxes at a lower rate in one year than in the other. However, the window for certain tax-saving moves closes on December 31, 2024, so don't procrastinate.
Consider ways to defer income to next year
Consider opportunities to defer income to 2025, particularly if you think you may be in a lower tax bracket then*. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services to postpone payment of tax on the income until next year.
Accelerate deductions
Look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, making payments for deductible expenses, such as qualifying interest, state taxes, and medical expenses, before the end of the year (instead of paying them in early 2025) could make a difference on your 2024 return.
Make deductible charitable contributions
If you itemize deductions on your federal income tax return, you can generally deduct charitable contributions, but at the time of this publication in 2024, the deduction is limited to 50% (currently increased to 60% for cash contributions to public charities), 30%, or 20% of your adjusted gross income, depending on the type of property you give and the type of organization to which you contribute. (Excess amounts can be carried over for up to five years.)
Possibly increase withholding
If it looks as though you're going to owe federal income tax for the year, consider increasing your withholding on Form W-4 for the remainder of the year to cover the shortfall. The biggest advantage in doing so is that withholding is considered as having been paid evenly throughout the year instead of when the dollars are taken from your paycheck.
Save more for retirement
Deductible contributions to a traditional Individual Retirement Account (IRA) and pretax contributions to an employer-sponsored retirement plan, such as a 401(k), can help reduce your 2024 taxable income. If you haven't already contributed up to the maximum amount allowed, consider doing so.
For 2024, you can contribute up to $23,000 to a 401(k) plan ($30,500 if you're age 50 or older) and up to $7,000 to traditional and Roth IRAs combined ($8,000 if you're age 50 or older). The window to make 2024 contributions to an employer plan generally closes at the end of the year, while you have until April 15, 2025, to make 2024 IRA contributions. (Roth contributions are not deductible, but qualified Roth distributions are not taxable.)
Take any required distributions
If you are age 73 or older, you generally must take required minimum distributions (RMDs) from your traditional IRAs and employer-sponsored retirement plans (an exception may apply if you're still working for the employer sponsoring the plan). Take any distributions by the date required — the end of the year for most individuals. The penalty for failing to do so is substantial: 25% of any amount that you failed to withdraw as required (10% if corrected in a timely manner). Beneficiaries are generally required to take annual distributions from inherited retirement accounts (and under certain circumstances, a distribution of the entire account 10 years after certain events, such as the death of the IRA owner or the beneficiary); there are special rules for spouses.
Weigh year-end investment moves
Though you shouldn't let tax considerations drive your investment decisions, it's worth considering the tax implications of any year-end investment moves. For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all of those gains by selling losing positions. At the time of this publication in 2024, any losses above the amount of your gains can be used to offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to reduce your taxes in future years.
Plan for the end of this year and beyond by reaching out to a knowledgeable First Bank Wealth Management Advisor today.
Set aside time to plan
Effective planning requires that you have a good understanding of your current tax situation, as well as a reasonable estimate of how your circumstances might change next year.
There's a real opportunity for tax savings if you'll be paying taxes at a lower rate in one year than in the other. However, the window for certain tax-saving moves closes on December 31, 2024, so don't procrastinate.
Consider ways to defer income to next year
Consider opportunities to defer income to 2025, particularly if you think you may be in a lower tax bracket then*. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services to postpone payment of tax on the income until next year.
Accelerate deductions
Look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, making payments for deductible expenses, such as qualifying interest, state taxes, and medical expenses, before the end of the year (instead of paying them in early 2025) could make a difference on your 2024 return.
Make deductible charitable contributions
If you itemize deductions on your federal income tax return, you can generally deduct charitable contributions, but at the time of this publication in 2024, the deduction is limited to 50% (currently increased to 60% for cash contributions to public charities), 30%, or 20% of your adjusted gross income, depending on the type of property you give and the type of organization to which you contribute. (Excess amounts can be carried over for up to five years.)
Possibly increase withholding
If it looks as though you're going to owe federal income tax for the year, consider increasing your withholding on Form W-4 for the remainder of the year to cover the shortfall. The biggest advantage in doing so is that withholding is considered as having been paid evenly throughout the year instead of when the dollars are taken from your paycheck.
Save more for retirement
Deductible contributions to a traditional Individual Retirement Account (IRA) and pretax contributions to an employer-sponsored retirement plan, such as a 401(k), can help reduce your 2024 taxable income. If you haven't already contributed up to the maximum amount allowed, consider doing so.
For 2024, you can contribute up to $23,000 to a 401(k) plan ($30,500 if you're age 50 or older) and up to $7,000 to traditional and Roth IRAs combined ($8,000 if you're age 50 or older). The window to make 2024 contributions to an employer plan generally closes at the end of the year, while you have until April 15, 2025, to make 2024 IRA contributions. (Roth contributions are not deductible, but qualified Roth distributions are not taxable.)
Take any required distributions
If you are age 73 or older, you generally must take required minimum distributions (RMDs) from your traditional IRAs and employer-sponsored retirement plans (an exception may apply if you're still working for the employer sponsoring the plan). Take any distributions by the date required — the end of the year for most individuals. The penalty for failing to do so is substantial: 25% of any amount that you failed to withdraw as required (10% if corrected in a timely manner). Beneficiaries are generally required to take annual distributions from inherited retirement accounts (and under certain circumstances, a distribution of the entire account 10 years after certain events, such as the death of the IRA owner or the beneficiary); there are special rules for spouses.
Weigh year-end investment moves
Though you shouldn't let tax considerations drive your investment decisions, it's worth considering the tax implications of any year-end investment moves. For example, if you have realized net capital gains from selling securities at a profit, you might avoid being taxed on some or all of those gains by selling losing positions. At the time of this publication in 2024, any losses above the amount of your gains can be used to offset up to $3,000 of ordinary income ($1,500 if your filing status is married filing separately) or carried forward to reduce your taxes in future years.
Plan for the end of this year and beyond by reaching out to a knowledgeable First Bank Wealth Management Advisor today.
| Brian Lescar, CFP®, AAMS®, LIFA is a Vice President and Portfolio Manager for First Bank Wealth Management. With over 30 years of experience in financial services and a deep knowledge of investment management, you may contact Brian Lescar at (314) 592-2504 or via email at [email protected]. |   |
*As always, consult a certified tax professional regarding your specific tax bracket, needs, and situation.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Prepared by Broadridge Advisor Solutions Copyright 2024.
Investment and insurance products are offered through OSAIC INSTITUTIONS, INC., Member FINRA/SIPC. Osaic Institutions and First Bank are not affiliated. Osaic Institutions does insurance business in California as Osaic Institutions Insurance Agency, CA Agency License #OH30186. Products and investment advisory services made available through Osaic Institutions are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of nor guaranteed or insured by any bank or bank affiliate. These products are subject to investment risk, including the possible loss of value. First Bank Wealth Management is a trade name of First Bank, and certain products and services are provided through First Bank, and its affiliates and subsidiaries. Neither Osaic Institutions or First Bank, nor any of their affiliates or financial advisors, provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions. Use FINRA’s BrokerCheck to learn about the professional background, certifications, licenses, and any regulatory violations or complaints for any financial advisor.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Prepared by Broadridge Advisor Solutions Copyright 2024.
Investment and insurance products are offered through OSAIC INSTITUTIONS, INC., Member FINRA/SIPC. Osaic Institutions and First Bank are not affiliated. Osaic Institutions does insurance business in California as Osaic Institutions Insurance Agency, CA Agency License #OH30186. Products and investment advisory services made available through Osaic Institutions are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of nor guaranteed or insured by any bank or bank affiliate. These products are subject to investment risk, including the possible loss of value. First Bank Wealth Management is a trade name of First Bank, and certain products and services are provided through First Bank, and its affiliates and subsidiaries. Neither Osaic Institutions or First Bank, nor any of their affiliates or financial advisors, provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions. Use FINRA’s BrokerCheck to learn about the professional background, certifications, licenses, and any regulatory violations or complaints for any financial advisor.