The end of November and December always seems to fly by in a whirlwind of activity. Between holiday shopping, festive gatherings, and end-of-year reflections, taxes might be the last thing on your mind. But for those of us in the tax and tax planning professions, this season isn’t just about decking the halls—it’s about taking wise steps to lower your tax bill come April 15.
To keep it simple (and be sure you have time to finish wrapping those gifts), here are five smart tax planning strategies to tackle before December 31. Check these five things off your list, and you’ll be just as prepared for Uncle Sam as you are for that guy in the big red suit!
Capture your capital gains
The stock market has seen its ups and downs in 2024, but now is the time to review your portfolio if you’ve been riding a wave of gains. Selling profitable investments before year-end can help you lock in long-term capital gains, which are taxed at lower rates than ordinary income (i.e. wages, Social Security). Depending on your taxable income, you could pay as little as 0% federal tax on those gains. This strategy not only secures your gains but may also position you for strategic reinvestment in 2025; just make sure you’ve held the investment for longer than 12 months to get the preferred tax rate.
Sell off your losers
Even in strong markets, not every investment is a winner. If you’re holding onto underperforming stocks, mutual funds, or ETFs, consider selling them before December 31 to offset gains. If you don’t have any gains, you can take up to $3,000 of those losses and offset your other income.
Emotionally, selling off your losers can be rough—no one wants to buy high and sell low. But the good news is that by selling now, you can receive a tax benefit from those capital losses called tax-loss harvesting. It not only reduces your tax liability but also allows you to carry forward unused losses to future years. And if you still like the long-term potential of a stock, you can repurchase it after year-end—just be sure to wait at least 30 days to avoid the wash sale rule.
Max out your Health Savings Account (HSA)
If you’re enrolled in a high-deductible, HSA-eligible health plan, a Health Savings Account can be a great tool that allows you to save for medical expenses with pre-tax dollars, grow your money with no capital gains or other investment taxes, and then spend it on qualified medical expenses tax-free down the road. That makes it particularly important (and valuable) to take full advantage of this no-tax savings opportunity by maxing out your contributions every year. For 2024, the maximum HSA contribution is:
- $4,150 for individuals
- $8,300 per family
- Add an extra $1,000 if you’re 55 or older
While you have until the tax filing deadline to contribute to your HSA for the year, contributing the maximum amount through a payroll deferral by December 31 allows you to avoid paying Social Security and Medicare taxes on those contributions as well.
Give to charity the smart way
Year-end giving is a hallmark of the holidays, and it can be a win-win for you and the causes you support. Do, however, be sure you’re making every dollar count by taking advantage of the tax code. If you’re age 70 ½ or older, consider making a Qualified Charitable Distribution (QCD) directly from your IRA to your favorite charity.
A QCD allows you to donate directly to the charitable organization of your choice using your Required Minimum Distribution (RMD). The donated IRA distribution doesn’t appear on your tax return, so you won’t have to pay income tax on the amount donated. With the current standard deduction so high, this is a way to ensure you get a tax benefit for your charitable giving.
Even if you’re not eligible for a QCD, donating appreciated assets like stocks or utilizing a Donor-Advised Fund can maximize your tax savings while making an impact.
Investing in your future is always a good idea, and the tax savings are a great bonus. If you have a good plan through your employer, take full advantage of it. But you don’t have to stop there. Work with your CERTIFIED FINANCIAL PLANNER™ to see if it makes sense to add a traditional IRA and/or a Roth IRA for 2024. If you’re self-employed or own a business, a SEP IRA or Solo 401(k) may also be an option. Whatever type of retirement accounts you have available, make sure you utilize them to their fullest potential.
In 2024, the contribution limits are:
- Traditional IRA and Roth IRA: $7,000 (plus a $1,000 catch-up if you’re 50 or older)
- 401(k): $23,000 (plus $7,500 in catch-up contributions for those 50 and older)
Of course, just like comprehensive financial planning, the most effective tax planning is done year-round. However, these five steps can go a long way in reducing your tax burden before December 31. Work with your CERTIFIED FINANCIAL PLANNER™ and trusted tax professional to ensure your strategies align with your unique financial situation and your holiday season stays merry and bright!
Jared Moxness is a CERTIFIED FINANCIAL PLANNER™ at Korhorn Financial Group. He also holds his Certified Public Accountant (CPA) and Certified Exit Planning Advisor (CEPA) designations.
