8 Year-End Tax Moves to Reduce Your 2024 Tax Bill
Strategic tax planning is about much more than filing returns – it's about making savvy financial choices that can significantly impact your tax obligations. As we approach year-end, now is a good time to take a proactive stance on your tax planning to potentially reduce your 2024 tax bill.
Timing is key, as many tax-saving strategies must be put into action by December 31st to count for this tax year. While everyone’s tax situation is unique, here are eight effective strategies to consider implementing before year-end to minimize your 2024 tax burden.
#1: Maximize Retirement Account Contributions to Reduce Your 2024 Tax Bill
As year-end approaches, making the most of retirement contributions is one of the most effective moves you can make to reduce your 2024 tax bill while securing your financial future.
For 2024, you can contribute up to $23,000 to your 401(k) plan, with an extra $7,500 catch-up contribution available if you're 50 or older. If your employer offers matching contributions, make sure you contribute at least enough to receive the full match. This is essentially free money that can provide an immediate boost to your retirement savings.
Self-employed individuals can also benefit from this approach. Depending on your business income, SEP IRAs and Solo 401(k)s allow for contributions as high as $69,000, offering high earners a powerful way to reduce your 2024 tax burden.
For additional tax-advantaged growth, aim to maximize your Individual Retirement Account (IRA) contributions as well. In 2024, you can contribute up to $7,000 ($8,000 if you’re 50 or older) to your Traditional and Roth IRAs. However, keep in mind there are income limits that may prevent you from contributing directly to a Roth account.
#2: Plan Withdrawals from Inherited Traditional IRAs
If you inherited a traditional IRA from someone who passed away in 2020 or later, understanding the withdrawal requirements is essential to avoid unexpected tax consequences in 2024 and beyond.
The SECURE Act introduced a 10-year rule for most non-spouse beneficiaries, requiring heirs to withdraw all funds from inherited IRA accounts within 10 years. However, the IRS has since clarified the rules for Required Minimum Distributions (RMDs) within this 10-year period for beneficiaries of traditional IRAs.
Starting in 2025, if the original IRA owner was already taking RMDs, non-spouse beneficiaries will also need to take annual RMDs in years one through nine and fully empty the inherited account by year 10. If the original owner passed away before reaching RMD age, however, beneficiaries have more flexibility. While you must still empty the account by year 10, you can choose when and how much to withdraw within the first nine years.
It may be wise to avoid waiting until year 10 to withdraw the majority of the funds, as large distributions can bump you into a higher tax bracket. Instead, consider spreading the withdrawals over the full 10-year period.
Evaluating your current income and future income projections can help you design a withdrawal plan that minimizes the tax impact while ensuring compliance with these new regulations. In addition, be sure to work with an experienced professional to ensure your strategy aligns with your financial goals and minimizes unnecessary tax exposure.
#3: Take Advantage of Strategic Charitable Contributions to Reduce Your 2024 Tax Bill
Year-end charitable giving can be a powerful way to reduce your 2024 tax bill—especially when you approach it strategically.
One effective method is "bunching" your charitable contributions, which involves consolidating several years' worth of planned donations into a single tax year. This strategy is particularly useful if you’re close to exceeding the standard deduction threshold ($14,600 for single filers and $29,200 for married couples filing jointly in 2024), as it allows you to itemize deductions and maximize the tax benefits of your generosity.
To enhance the benefits of bunching, consider using a Donor-Advised Fund (DAF). By contributing multiple years' worth of donations to a DAF now, you can take the entire tax deduction up front while distributing grants to charities over time. This approach provides both tax efficiency and flexibility, allowing you to maintain a consistent giving pattern without changing your chosen charities.
For those aged 70½ or older, Qualified Charitable Distributions (QCDs) present another valuable option. In 2024, you can transfer up to $105,000 directly from your IRA to a qualified charity. Not only does this satisfy your Required Minimum Distribution (RMD) obligation, but the transferred amount is also excluded from your taxable income—resulting in a tax-free charitable contribution.
#4: Optimize Capital Gains and Losses
Strategically managing investment gains and losses before year-end can be another effective strategy to reduce your 2024 tax bill. One tactic is tax-loss harvesting—selling investments that have declined in value to capture losses and directly offset your capital gains, dollar-for-dollar. If you have any excess losses, you can deduct up to $3,000 against ordinary income, creating an immediate tax advantage.
After a year of great stock performance, it’s particularly important to differentiate between short-term and long-term capital gains. Gains from assets you’ve held for less than a year are subject to ordinary income rates, which can reach as high as 37% in 2024.
In contrast, long-term gains on investments you’ve held for over a year qualify for the lower, long-term capital gains rate of 15% or 20%, depending on your income. When possible, it’s best to hold appreciated investments until they qualify as long-term to take advantage of this lower tax rate.
Also, keep in mind that timing matters. If you have investments with losses, selling before December 31st allows you to benefit from the tax deduction in the current tax year.
On the other hand, if you’re looking to sell appreciated assets, waiting until January could push your tax bill out by a full year. Just be cautious of "wash sales"—if you repurchase substantially identical securities within 30 days, the IRS disallows the tax deduction for the loss.
#5: Review and Adjust Withholding and Estimated Tax Payments
Now is the ideal time to review your tax withholding and estimated payments to avoid any surprises when filing your 2024 return. To steer clear of underpayment penalties, aim to pay at least 90% of this year’s tax liability or 100% of last year’s tax bill (110% if your income exceeds $150,000).
This check-up is especially important if you’ve had significant changes in income, such as a large bonus, equity compensation, or notable investment gains. Moreover, stock option exercises and restricted stock unit (RSU) vests often come with standard withholding rates that may fall short of covering your true tax obligation—particularly if you’re in a higher tax bracket.
Lastly, don’t overlook state and local tax requirements, especially if you reside in a high-tax state. Even if your federal withholding aligns with your expected tax, your state obligations might differ. To address any gaps, consider increasing withholding from your remaining 2024 paychecks or, alternatively, make an estimated tax payment by January 15, 2025.
#6: Take Required Minimum Distributions (RMDs) Strategically
If you’re subject to Required Minimum Distributions (RMDs), be sure to make these withdrawals before year-end to avoid hefty penalties. However, keep in mind that some rules regarding RMDs have shifted due to recent changes under the SECURE Act.
For instance, if you turned 72 after December 31, 2022, you now have the flexibility to wait until age 73 to begin taking RMDs. For those born in 1960 or later, RMDs won’t start until age 75. Once you reach your required age, annual withdrawals become mandatory, so it’s wise to plan for these distributions as part of your tax strategy.
If you don’t need the extra income, a Qualified Charitable Distribution (QCD) can be an effective way to fulfill your RMD and reduce your 2024 tax bill. By directing up to $105,000 from your IRA directly to a charity, you satisfy your RMD obligation while excluding the distribution from your taxable income. This strategy can maximize the impact of your RMD while supporting causes you care about, making it a tax-efficient option to consider.
#7: Consider Prepaying State and Local Taxes (SALT) if Appropriate
If you itemize deductions, consider whether prepaying some of your 2025 state and local taxes (SALT) before December 31st could benefit you. The SALT deduction remains capped at $10,000 per year for federal tax purposes, which can particularly impact residents of high-tax states.
First, review your 2024 SALT payments to determine if you’re under the $10,000 cap. If so, prepaying your January property tax installment or making an additional state tax payment before year-end could enhance your deductions and potentially reduce your 2024 tax bill.
However, if you’re subject to the Alternative Minimum Tax (AMT), keep in mind that SALT deductions aren’t allowed under the AMT calculation. In this case, prepaying may not provide any tax benefit, and deferring payments until 2025 could be a smarter approach, preserving cash flow without sacrificing deductions.
#8: Plan for Gift and Estate Tax Exemptions
With significant changes to estate tax laws approaching, now is an opportune time to revisit your wealth transfer strategy. Currently, the lifetime estate and gift tax exemption stands at $13.61 million per person (or $27.22 million for married couples). However, this amount is set to drop considerably after 2025 when provisions of the Tax Cuts and Jobs Act are scheduled to expire.
One effective approach is to use the annual gift tax exclusion, which lets you gift up to $18,000 per recipient in 2024 without reducing your lifetime exemption. Married couples can gift up to $36,000 per recipient each year. This exclusion can help reduce your taxable estate while providing meaningful support to family members during your lifetime.
If you’re considering larger wealth transfers, now may be the time to leverage your lifetime exemption before the limit decreases. For example, you could make direct gifts, establish irrevocable trusts, or fund education accounts for future generations. Acting now allows you to lock in the current, higher exemption amounts, which could significantly reduce your estate’s future tax burden.
Our Team Can Help You Reduce Your 2024 Tax Bill
Proactive year-end tax planning can help reduce your 2024 tax bill while enhancing your overall financial health. While the strategies outlined here provide a solid foundation for tax-efficient wealth management, your unique financial situation may present further opportunities to lower taxes or call for specific adjustments tailored to your needs.
To fully capitalize on these tax-saving possibilities, partnering with an experienced professional can make all the difference. Our team is ready to help you create a personalized plan that aligns with both your tax situation and broader financial goals. Reach out to us today to learn more and take the first step in your financial journey.
