BUSINESS/FINANCE
Year-End Tax Planning Tips
By TEJAL DHRUVE, CPA
As we are approaching the end of the year 2024, it’s time to look back on the earnings/loses during the year, expect/calculate the tax liabilities and take some steps before the end of the year to reduce the burden.
Review your withholding and estimated taxes:
Do not get caught off guard with the high tax bill when you finalize your taxes for 2024. We often forget the raises, bonuses, switch of jobs or multiple jobs-all the factors that result in higher tax bills and penalties if you didn’t pay enough during the year. Here are a few steps to take:
You are off the hook for the underpayment penalty if you prepay, through estimated tax payments or withholding, at least 90 percent of your 2024 total tax bill or 100 percent of what you owed for 2023 (110 percent if your adjusted gross income for 2023 exceeded $150,000). You can give your employer a new W-4 to have more tax taken from wages.
For the retirees, you can elect to have 7, 10, 12 or 22 percent of your monthly benefits taken out. You can instruct the Social Security Administration or pension plan manager to do so with every payment.
Retirees taking RMDs from IRAs can use this withholding tax strategy: Have more tax withheld from a year-end distribution from your traditional IRA. Taxes withheld at any point in the year are treated as if evenly paid throughout the year. By default, IRA custodians withhold 10%, but you can ask for more to be withheld.
Tax Strategy for Charitable Contributions:
Charitable donations made directly from a traditional IRA can save taxes. People 70½ and up can transfer up to $105,000 in 2024 from IRAs directly to charity. Qualified charitable distributions can count as RMDs, but they are not taxable, and they’re not added to your AGI. The QCD strategy is a good way to get tax savings from charitable gifts for taxpayers taking the standard deduction instead of itemizing. Funds must generally go to a 501(c)(3) charity. But IRA owners can do a one-time QCD of up to $53,000 through a charitable remainder trust or a charitable gift annuity.
Pretax Contributions to your Retirement Plans and IRAs:
Max out your 2024 401(k) and IRA contributions.
You have until Dec. 31 to put money in 401(k)s and other workplace retirement plans, and until April 15, 2025, to contribute to an IRA for 2024. You can stash up to $23,000 in a 401(k) … $30,500 if age 50 or up. The 2024 contribution cap for IRAs is $7,000, plus $1,000 more if 50 or older.
Tax Loss Harvesting:
It is a time of analysis for the investors how their portfolio has performed during the year. Tax loss harvesting is a way investors can lower their tax bills. The strategy involves selling stocks or other securities in your taxable investment accounts that have declined in value for the purpose of generating capital losses to offset gains from the sale of winners. Investors commonly do this closer to the end of the year, when they have a better idea of the amount of capital gains they will have. Capital losses can offset capital gains generated during the year and additional up to $3,000 of other income. Excess losses are carried over to the next year and can help offset future gains.
Beware of the wash sale rules:
Seema Ramroop, financial planner at Prudential Advisors, can be reached at (813) 957-8107 or email [email protected]