Summer is the perfect time to take a closer look at your tax planning strategies and explore moves that could lower your 2024 tax bill. With no significant federal tax changes expected to take effect next year, the tax planning landscape is relatively straightforward. To help you make the most of this stable environment, here are seven tax planning ideas to consider before year-end.
- Optimize the Standard Deduction
When filing your federal income tax return, you’ll need to choose between itemizing your deductions or taking the standard deduction. The Tax Cuts and Jobs Act (TCJA) significantly increased the standard deduction amounts, which continue to be indexed for inflation through 2025. For 2024, the standard deduction is:
- $14,600 for singles and married couples filing separately,
- $29,200 for married couples filing jointly, and
- $21,900 for heads of households.
If your itemizable deductions are close to these thresholds, consider making additional expenditures before December 31 to tip the balance in favor of itemizing. Potential expenses to accelerate include:
- Mortgage interest: Prepay your January 2025 mortgage payment to get 13 months of interest deductions in 2024.
- State and local taxes: Prepay state and local income and property taxes due early next year to increase your itemized deductions for 2024. Be cautious if you’re subject to the alternative minimum tax (AMT), as these deductions are disallowed under AMT rules.
- Charitable contributions: Consider making larger donations to IRS-approved charities before year-end to push your itemizable expenses above the standard deduction.
- Medical expenses: Accelerate elective medical procedures, dental work, and vision care to exceed the 7.5% of adjusted gross income (AGI) threshold for deductible medical expenses.
- Manage Gains and Losses in Your Taxable Investment Accounts
With the stock market performing well this year, managing your gains and losses in taxable accounts is crucial. Consider these strategies:
- Investment gains: Sell appreciated securities held for over 12 months to benefit from long-term capital gains (LTCGs) tax rates of 0%, 15%, or 20%, depending on your income. Most taxpayers will pay 15%, while high-income earners will face the 20% rate.
- Investment losses: If you have capital losses from earlier this year or carryovers from previous years, you can sell appreciated shares without a tax hit. Consider selling underperforming investments to offset capital gains, particularly high-taxed short-term gains.
- Take Advantage of the 0% Tax Rate on Investment Income
Some individuals may qualify for a 0% federal income tax rate on LTCGs and qualified dividends. If your income is too high, consider gifting appreciated stock or mutual fund shares to loved ones in the 0% bracket. For 2024, the income thresholds for the 0% rate are:
- $94,051 for married joint-filing couples,
- $47,026 for single filers, and
- $63,001 for heads of households.
Ensure the recipient meets the required holding period to benefit from the 0% rate.
- Convert a Traditional IRA to a Roth IRA
Converting a traditional IRA to a Roth account can be a smart tax move if you expect to be in a higher tax bracket during retirement. While the conversion is taxable now, it allows for tax-free withdrawals in the future. Given the potential for tax rates to rise, converting sooner rather than later could save you money in the long run.
- Donate to Charities
If you itemize, consider making charitable contributions with these strategies in mind:
- Donate appreciated investments: By donating publicly traded shares owned for more than a year, you can deduct the full market value while avoiding capital gains taxes.
- Sell underperforming investments: Use the tax-saving capital losses to offset other gains, then donate the proceeds to charity for an additional deduction.
- Make Gifts to Loved Ones
Apply the same strategies used for charitable donations when gifting to loved ones. Giving appreciated investments can allow the recipient to benefit from lower tax rates on gains. Alternatively, selling underperforming investments allows you to take a tax loss before gifting the proceeds.
- Make Charitable Gifts from Your IRA
If you’re 70½ or older, consider making qualified charitable distributions (QCDs) from your IRA. These donations, up to $100,000, are excluded from your taxable income and count toward your required minimum distributions (RMDs), offering a tax-efficient way to support your favorite causes. With the current federal income tax rules expected to remain in place next year, the 2024 tax planning landscape is clear. However, changes could occur depending on the outcome of the November elections. These are just a few strategies to lower your tax burden for this year. Additional opportunities, such as education-related breaks, health savings accounts, and credits for energy-efficient home improvements, may also apply to your situation. Reach out to a Reynolds + Rowella tax advisor this summer to ensure you’re making the right moves for your financial future. Our team is here to help you secure the best possible outcomes for your unique circumstances.
Reynolds + Rowella is a regional accounting and consulting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve. Our mission is to operate as a financial services firm of outstanding quality. Our efforts are directed at serving our clients in the most efficient and responsive manner possible, delivering services that exceed the expectations of those we serve. The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, please contact Elizabeth Bresnan at 203.438.0161 or email.
