Tax Season Is a Month Away. Review Our End-of-Year Tax Checklist to Prepare
You’re probably sipping eggnog and curled up by the fire right now, but before you know it tax time will come upon us. The end of the year is a great time to review your taxes in preparation for filing your taxes 2024 tax returnespecially if you expect your financial situation to change significantly in 2025.
Some tax strategies can reduce your tax burden and help you get a bigger refund, but you’ll need to act quickly as some steps need to be completed by December 31, 2024.
Read more: If you make money through Venmo, Cash App or Paypal this year, be aware of these tax changes
It’s worth taking the time to review your tax situation now, as a little effort now could pay off big time later. Read on to find year-end tax tips to prepare for the upcoming tax season.
1. Double check your pay stubs for tax withholdings
The United States has a “pay-as-you-go” income tax model, which is why your employer deducts money from your paycheck and Freelancers must pay estimated taxes every quarter. Failure to pay enough tax during the year may result in penalties at tax time.
Your employer determines the amount to withhold from your paycheck through your W-4 tax form, which includes your filing status and estimated tax deduction. The end of the year is a great time Check your W-4 and current tax withholdings to decide whether to change it.
IRS Withholding tax estimator tool Allows you to estimate current withholdings and projected refunds to adjust your W-4 form. You can submit an updated Form W-4 Your employer must initiate your change before the start of the first pay period (that is, 30 days or more after you file your W-4).
2. Sell all losing stocks to offset your capital gains
2024 is a big year for stocks — the S&P 500 is up 30% — but there are still plenty of stocks losing money this year. One highlight of potential stock losses is the “opportunity to practice”tax loss harvesting“.
This tax strategy works by realizing losses or selling stocks and assets that have lost value to offset other capital gains you may have earned. For example, if you made $25,000 in profit from real estate sales in 2024, but were investing in distressed stocks such as Intel), you can sell your securities and subtract the financial loss on that investment from your capital gains. If you have a $25,000 inventory loss, you will offset the $25,000 earned from the property sale to eliminate that tax liability.
Capital gains include any income you make from the sale of an asset, such as stocks, real estate, cars, furniture, or any other tangible property, but you must actually sell the asset to realize the loss and offset the gain.
3. Maximize contributions to retirement accounts
Pensions such as 401(k) Account IRAs offer one of the most effective tax breaks because you can reduce your tax bill while accumulating funds for the future. If you can afford it, maximize your possible contributions to any retirement account before the end of the year.
this 401(k) Contribution Deduction Limits Taxes for 2024 are $23,000, which is no Calculate employer contributions. Workers in the 24% tax bracket could reduce their tax bill by nearly $5,000 simply by saving money for the future. Increase the regular 401(k) contribution percentage for the final pay period in 2024 to take advantage of potential retirement deductions.
If you are over 50, you can contribute more to your 401(k) by: “Catching Up” Contributions $7,500 total per year through 2024 (or $30,000 total), if Your 401(k) plan allows it. You don’t even need to be “in arrears” on your 401(k) contributions to take an additional rollover on your account.
For an IRA, the maximum tax-deductible contribution in 2024 is $7,000, or $8,000 if you are over 50. The amount you can deduct from your taxes depends on your income and whether you have a job that provides a retirement plan.
4. Make your home more energy efficient
grateful Inflation Reduction Act of 2022there are some serious incentives to make your home “greener” by 2024. This law increases the amount of tax credits you can receive for improving your home’s energy efficiency. For this tax year, Residential Clean Energy Credit – Financing rebates for installing solar panels, geothermal heat pumps, fuel cells and battery storage – still at 30%.
Tax credits have a greater impact on your tax bill than deductions. Deductions lower the level of your taxable income, and tax credits directly reduce the amount of tax you owe the IRS.
If a solar system, wind turbine or geothermal heat pump is installed before January 1, 2025, 30% of the cost is now rebateable. In California, Average cost of solar installation It’s $11,563. If you make the average improvements to your home in 2024, you will reduce your taxes by $3,467.
Tax credits for energy improvements are not limited to alternative energy sources. Just install it New, qualified ENERGY STAR certified furnaces and boilers Tax credits are also available, although on a smaller scale than alternative energy sources. Be sure to check the manufacturer’s tax certification statement, as not all ENERGY STAR certified products qualify.
5. Can you defer your year-end bonus or payment?
It’s not always easy to defer employer payments, but if you receive a year-end bonus and want to minimize your taxable income this year, consider asking your company to pay you in January.
Likewise, if you’re a freelancer or contractor and want to reduce your taxable income in 2024, consider deferring your invoices until December so you don’t get paid until January. You’re just deferring income tax on that money until your taxes are due in 2025, so you’ll need to strategize whether this year or next is a better time to earn that money.
6. If you want more tax relief, donate to charity now
If you itemize your tax deductions and want to make financial contributions to causes and groups you support, do so before the end of the year to best reduce your 2024 taxable income. Most taxpayers can usually Deduct charitable contributions Up to 50% of taxable income.
Before donating, please make sure your donation is tax deductible by searching below IRS’s Tax-Exempt Organization Database. All valid charities and non-profit organizations will also have a tax identification number indicating that they are tax exempt.
7. Check required minimum distributions from IRA and 401(k) accounts
U.S. tax law requires Americans to begin taking distributions from personal or job-provided retirement accounts when they reach a certain age. Beginning in 2023, the SECURE 2.0 Act increases the age from 72 to 73 for those who turn 72 after December 31, 2022.
These distributions are mandatory for 401(k) plans, traditional IRAs, profit-sharing plans, and pensions. they are no Required while the Roth IRA owner is alive.
Required minimum distributions (RMDs) are calculated by adding up all the funds in your retirement accounts and dividing by the IRS’s life expectancy factor. The U.S. Securities and Exchange Commission provides simple calculator Contains the latest IRS life expectancy tables.
The administrator of your retirement plan must comply with tax laws on RMDs, and it’s your responsibility to make sure you get the correct amount. If you do not meet the required RMD amount, you will face The most severe penalties from the IRS About. In the past, the excise tax on failed RMDs was 50%, but the SECURE 2.0 Act reduces the penalty to 25% and further to 10% if the RMD is corrected within two years.
However, if you are required to withdraw $20,000 in 2024 but only receive $10,000, you could face a $2,500 penalty. It’s definitely worth double-checking your 2024 RMDs and withdrawing more funds if needed.
8. Consolidate your medical expenses 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 spend $5,000 on medical expenses, you can deduct $1,250 from your taxable income ($5,000 – ($50,000 x 7.5%)).
Therefore, it may be more advantageous to lump all major medical expenses into one year. These costs may include surgeries, preventive care, hospital visits, dental care, prescription drugs, eyeglasses, hearing aids, and mental health care (such as therapy), as well as transportation to and from providers.
If your medical expenses this year are close to 7.5% of AGI, consider making as many of your anticipated health-related purchases as possible before the end of December. Straighten your teeth, buy new glasses or schedule elective surgery before the end of 2024 and you’ll maximize your medical deduction.
Likewise, if you don’t meet the 7.5% AGI threshold for medical expenses in 2024, postpone any non-emergency health-related purchases until January, when they may be more beneficial for next year’s income taxes.
9. Develop a business spending strategy
If you are self-employed or freelance, Deduct your business expenses Can save you a lot of tax. Depending on how much you’ve already spent on professional work this year, you might consider prepaying next year’s expenses before the end of 2024 to reduce your tax burden.
For example, you could order and pay for supplies in December 2024 that will be used for several months in 2025, rather than purchasing supplies all at once on a monthly basis. The timing of your deductions may depend on whether you use the cash basis accounting method or the accrual basis, but prepaying next year’s business expenses in advance is a time-tested way to reduce your taxable income for the current year.
It’s important to note that everyone’s tax situation is different. These year-end tax tips may work for you, but there is no “one-size-fits-all” approach to tax preparation. Always consult a tax professional before making any major tax decisions.
For more information about the 2024 tax filing season, see How Income Brackets and Standard Deduction Will Change in 2025.
