Everybody wants to save on their taxes and luckily there are a few simple tax-saving strategies available to nearly everyone. Year-end tax planning means going over potential tax deductions that you may have missed during the year.
Maximize IRA Contributions
For 2024, the IRA contribution limits are $7,000 for those under age 50 and $8,000 for those age 50 or older.
You can contribute to a traditional or Roth IRA even if you participate in another retirement plan through your employer or business. However, you may not be able to deduct all of your traditional IRA contributions if you or your spouse participates in another retirement plan at work. Roth IRA contributions might be limited if your income exceeds a certain level.
Maximize 401(k) Contributions
If you have a 401(k) retirement account with your employer and haven't made the maximum contributions for the year, the end of the year is a great time to do so.
As contributions to your employer-sponsored retirement account can be pre-tax, the more contributions you make, the lower your taxable income is. You can deduct the contributions you make to your pre-tax 401(k) to reduce your taxable income. Check with your employer or HR department directly.
Tax-Loss Harvesting
Through tax-loss harvesting, the capital gains from one investment balance out the capital losses from another investment. It reduces the taxes you're required to pay on the capital gains you receive from an investment increasing in value.
Defer Income
Rather than taking a bonus at the end of the year, consider pushing it to the beginning of next year. If you are self-employed, you can use a similar tactic by waiting to send year-end billings and invoices until the beginning of the year.
For stocks you have capital gains on, rather than selling them in the current year, consider selling them in the next year. This will reduce your income in the current year and also reduce what you owe in taxes.
This strategy will work if the additional income will push you into a higher tax bracket. If the extra income doesn't change the tax bracket you're in, you can refrain from deferring that income.
Accelerate Inherited IRA Distributions
IRAs inherited from a non-spouse after 2020 must be fully liquidated by the end of the 10th year after the original owner passed away. To avoid a big tax hit in the 10th year, you can consider taking higher distributions while your tax bracket or income is lower, especially prudent if you can make tax-deductible contributions to a traditional IRA or 401(k) to offset the taxable distributions from the inherited IRA. The goal is to get as much money from the inherited account as possible while paying as little tax as your tax situation allows.
Check On HSA (Health Savings Account) Contributions
Adding money to your HSA reduces your taxable income for the year while reducing what you owe in taxes. And HSA contributions are tax-deductible. You may need to speak with your employer to change your HSA contributions. This will ensure these contributions are pre-taxed and decrease your taxable income.
Additionally, many HSAs let you invest in various funds, which have the potential to earn income and increase the value of your HSA.
Use these tips in your year-end tax planning and make the most of your income. If you have questions about how you can reduce your taxes or need help applying these strategies, please contact our office.
This material was developed and prepared by a third party for use by your Registered Representative. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The content is developed from sourcesbelieved to be providing accurate information.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera nor any of its representatives may give legal or tax advice.