2024 Year-End Tax Tips

Here are some things to consider as you weigh potential tax moves between now and the end of the year.

1. Manage your income

If you know that you will be in a lower tax bracket next year, consider opportunities to defer income to 2025. But if you made less income this year than normal, you may want to accelerate some of your income into 2024 or consider a ROTH conversion (see below). You may be able to manage your income by changing the timing on a year-end bonus or delay or accelerate the collection of business debts, rents, and payments for services.

2. Consider a ROTH conversion

Many people can benefit by holding more money in a ROTH IRA or ROTH 401(k). These accounts accumulate tax-free and there is no tax on withdrawals. This is unlike the traditional IRA or 401(k) accounts which are simply tax deferred. Also, when you get old enough traditional tax-qualified accounts have Required Minimum Distributions (RMDs) which force you to make taxable withdrawals each year. When you die, your heirs will still have to pay income tax on the account. By contrast, there are no RMDs on ROTH accounts and your heirs can leave the money accumulating tax free in the ROTH for an additional 10 years after you die. You can convert a traditional account to a ROTH account, but you do have to pay ordinary income tax on the conversion. Check with your financial or tax advisor to see if a ROTH conversion will benefit you.

3. Make deductible charitable contributions or a QCD

If you itemize deductions on your federal income tax return, you can generally deduct charitable contributions, but the deduction is limited to 50% (currently increased to 60% for cash contributions to public charities), 30%, or 20% of your adjusted gross income (AGI), 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.) Also with the higher standard deduction, you may have to make a significant deductible charitable contribution to get over the standard deduction. If you are over 70 ½, you have another option, the Qualified Charitable Distribution. This is a donation you make directly from your IRA to the charity (it must be direct). You don’t get a deduction, but you don’t pay tax on the QCD which is the equivalent of a deduction. This can be better for many people than making the contribution and deducting it.

4. Bump up withholding to cover a tax shortfall

If it looks as though you will 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. Time may be limited for employees to request a Form W-4 change and for their employers to implement it in time for 2024. 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 actually taken from your paycheck. This strategy can be used to make up for low or missing quarterly estimated tax payments.

5. Save more for retirement

Deductible contributions to a traditional IRA and pretax contributions to an employer-sponsored retirement plan such as a 401(k) can 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 Roth qualified distributions are not taxable.

6. Take required minimum distributions

If you are age 73 or older, you generally must take required minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (special rules may apply if you’re still working and participating in your employer’s retirement plan). You have to make the withdrawals 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 distribute as required (10% if corrected in a timely manner). If you like the idea of the QCD in #3, you can use that to satisfy the RMD.

7.  Weigh year-end investment moves

You shouldn’t let tax considerations drive your investment decisions. However, it’s worth considering the tax implications of any year-end investment moves that you make. 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. Any losses over and 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.

The information provided is for educational and informational purposes only, does not constitute investment advice, and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not consider any investor’s particular investment objectives, strategies, tax status or investment horizon. Investing is inherently risky. Information is based on sources we believe are accurate, but we cannot guarantee accuracy. You should consult your attorney or tax advisor. See more disclosures here: Disclosures