Tax Strategies to Consider Before Year-End
With the year coming to a close, now is the perfect time to start thinking about tax planning to maximize savings for 2024. Many opportunities for tax adjustments close at year-end, so early preparation can be key to achieving the best possible results. Here are some strategic tax planning tips to consider for the final quarter of the year.
The last quarter offers a unique opportunity to review income, deductions, and potential tax-saving strategies while there's still time to act. For business owners, deferring income until next year or accelerating expenses can provide tax advantages. Charitable contributions and pre-paying taxes are also options to consider. Accelerating certain expenses, like equipment purchases, may allow for deductions in 2024, helping to reduce this year’s taxable income.
Another useful strategy comes in the form of tax loss harvesting, which involves selling securities at a loss to offset capital gains. Although the final position of your portfolio won’t be set until year-end, starting a review now provides time to make adjustments and capture potential tax benefits.
The last few months of the year also provide an ideal time to maximize contributions to retirement accounts like 401(k)s, 403(b)s, and 457 plans. Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) can still be funded, providing further tax advantages.
If you’ve turned 73 this year, it’s essential to plan for the required minimum distributions (RMDs) that will start next April. Planning ahead can ensure these distributions are taken on time and in a way that best aligns with your financial goals.
For those taking RMDs, Qualified Charitable Deductions (QCDs) offer a way to support charities while potentially reducing your tax bill. These deductions allow individuals to meet RMD requirements while also receiving tax benefits from charitable giving.
As part of year-end planning, it may be beneficial to explore backdoor or Roth conversions. These conversions allow for tax-free growth of assets, though the decision to convert should consider factors like tax brackets, Medicare premium thresholds, and long-term capital gains tax thresholds. Consulting a tax advisor can help determine whether a conversion is beneficial this year or next.
If you’re a business owner, the end of the year is an excellent time to make significant business purchases. By timing equipment or inventory purchases, it may be possible to write off the cost within the current year. Additionally, reviewing obsolete inventory or uncollectible accounts receivable may offer further tax deductions.
While year-end tax planning may seem early, starting now is essential to maximizing savings and positioning yourself for the coming tax year. Early preparation can allow for proactive decisions and help manage future tax liabilities effectively. For those seeking guidance on how to align tax and financial planning as the year wraps up, consulting with a financial advisor or tax professional can provide valuable insights and assistance.
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