Key Strategies to Optimize Your 2024 Taxes

With less than two weeks left in the year, many taxpayers may not realize that there is still time to take a closer look at their tax situation and make adjustments to minimize the tax burden come April. Here are some ideas for year-end tax planning that can help you stay on top of your finances and make the most of available opportunities.

In Part-1 of this two-part series, we shared several tax saving strategies as we entered the second half of the year. Those tax savings included reviewing year-to-date paystubs, evaluating investment and capital gains, understanding required minimum distributions, charitable contributions tips, maximizing retirement contributions and making certain tax-free gifts before year-end. Below are some additional ideas for year-end tax planning to help you maximize your options and avoid leaving money on the table. 

Make gifts to loved ones

For gifts to loved ones, follow the same tax-smart strategies that apply to gifts to charities. That is, give away investments with accumulated gains directly to your loved ones. If you give away investments with long-term capital gains, the gift recipient will likely pay a lower tax rate than you would have paid if you sold the shares. Sell underperforming investments, collect the resulting tax-saving capital losses and give the sales proceeds to your loved ones.

Explore Qualified Charitable Distributions (QCDs)

For those aged 70½ or older, Qualified Charitable Distributions (QCDs) can be a tax-efficient way to make charitable contributions. QCDs allow you to direct up to $100,000 from your IRA directly to a charity without the distribution being included in your taxable income. This can help you satisfy your RMD requirements while potentially lowering your adjusted gross income.

Seniors should also ensure they ask their tax advisor about RMDs

As part of your tax planning, if you're an older adult or retiree, don't forget about required minimum distributions (RMDs). There are new RMD rules thanks to the SECURE Act 2.0 Act. The age for taking your first RMD changed to 73.

Timing your charitable contributions 

Consider making bigger donations before year end to IRS-approved charities. You can compensate by making smaller donations next year, if you wish. Bigger donations this year could cause your total itemizable expenses to exceed your standard deduction and lower this year’s federal income tax bill.

Incorporate certain investment transactions with your charitable giving strategy

If you itemize and want to make gifts to your favorite charities before year-end, you can make them while also adjusting your taxable investment portfolio. Consider making charitable contributions with these tax-smart principles:

Donate appreciated investments instead of giving away cash. For itemizers, donations of publicly traded shares owned over a year result in charitable deductions equal to the full current market value of the shares at the time of the gift. Plus, if you donate shares that are worth more than you paid for them, you can avoid capital gains taxes that would result from a sale.

Sell investments that are worth less than you paid for them and collect the resulting tax-saving capital losses. You can then give the sale proceeds to favored charities and, if you itemize, you can claim the resulting tax-saving charitable contribution deductions.

Evaluate medical expenses and the timing of deductible payments
The threshold for deducting medical expenses is 10% of AGI. You can deduct only expenses that exceed that floor. Certain taxpayers with health events may have unpaid expenses above the threshold and, to the extent such expenses can be settled before year-end, those payments may represent additional deductions for the current year.

Deductible expenses may include health insurance premiums (if not deducted from your wages pretax); long-term care insurance premiums (age-based limits apply); medical and dental services and prescription drugs (if not reimbursable by insurance or paid through a tax-advantaged account); and mileage driven for health care purposes (21 cents per mile driven in 2024). You may be able to control the timing of some of these expenses so you can bunch them into every other year and exceed the applicable floor.

Consider whether elective medical procedures can be scheduled and paid. Appointment calendars can be surprisingly open during the Holiday season. Consider accelerating into this year elective medical procedures such as dental work and vision care.

Don’t Delay

With the election now behind us, the federal tax rules may change as we look ahead. However, existing rules currently remain in place and each of the tax strategies mentioned should be carefully considered to the extent applicable for your financial and personal tax situation.

These are just some ideas to lower your tax obligation as you close out year. There may be other opportunities that could apply to your situation, including education-related breaks, tax-favored treatment for health savings accounts, and credits for energy-efficient home improvements and vehicles. Contact your tax advisor as soon as possible to implement the right strategies for your set of circumstances.

Diane West is a tax director at Stone & Company and oversees tax and advisory services at the firm. Stone & Company, LLC is a CPA firm based in Lexington, Massachusetts. www.stonecpas.com