Year-End Tax Planning Strategies: How to Save More Before December 31

November 27, 2024
end-of-year tax strategies

End-of-Year Tax Planning for Individuals: Strategies to Maximize Savings

As the year draws to a close, tax planning becomes a critical focus for individuals aiming to minimize their tax liability and maximize potential savings.  Proactive planning before December 31 can significantly impact your financial outcomes when tax season arrives.  Here’s a comprehensive guide to effective end-of-year tax strategies.

1. Review Your Current Tax Situation

Before diving into strategies, understand your current tax position:

  • Estimate Your Taxable Income: Review your year-to-date income, including wages, self-employment earnings, and investment returns.
  • Assess Deductions and Credits: Check what deductions and credits you’ve utilized so far and identify opportunities for more.
  • Use Online Tax Calculators: Many tools can provide a preliminary estimate of your tax liability.

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2. Maximize Retirement Contributions

Retirement accounts offer some of the best ways to reduce taxable income:

  • 401(k) Contributions: The contribution limit for 2024 is $22,500, or $30,000 if you're 50 or older.  Maximize contributions to lower your taxable income.
  • IRA Contributions: For traditional IRAs, you can contribute up to $6,500 ($7,500 for those 50+) and deduct the amount if you meet income limits.
  • Roth Conversions: If you expect to be in a higher tax bracket in the future, consider converting a traditional IRA to a Roth IRA.  While it triggers taxable income now, future withdrawals are tax-free.

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3. Take Advantage of Tax-Loss Harvesting

Offset investment gains by selling under-performing investments at a loss:

  • Harvesting Losses: Realize losses to offset taxable capital gains.
  • $3,000 Deduction: If losses exceed gains, you can deduct up to $3,000 ($1,500 for married filing separately) against ordinary income.
  • Reinvestment Rules: Avoid wash-sale rules by not repurchasing the same or substantially identical investment within 30 days.

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4. Bundle Deductions in High-Income Years

The 2024 standard deduction is $13,850 for individuals and $27,700 for married couples filing jointly.  If your itemized deductions are close to this threshold:

  • Prepay Property Taxes: Pay next year’s property tax bill early.
  • Bunch Charitable Donations: Donate to charities in a lump sum this year to exceed the standard deduction threshold.
  • Medical Expenses: Schedule medical or dental procedures before year-end if your out-of-pocket expenses exceed 7.5% of your adjusted gross income (AGI).

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5. Use Your Flexible Spending Account (FSA)

FSAs have a "use it or lose it" policy:

  • Check Remaining Balance: Spend leftover funds on qualified medical expenses before the deadline.
  • Grace Periods or Rollovers: Some plans offer a grace period or allow small rollovers into the next year.  Confirm with your employer.

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6. Evaluate Education Tax Benefits

Education-related expenses can yield tax advantages:

  • 529 Plan Contributions: Although not federally deductible, many states offer tax benefits for contributions to 529 plans.
  • Lifetime Learning Credit: Claim up to $2,000 per return for qualifying educational expenses, subject to income limits.

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7. Plan for Required Minimum Distributions (RMDs)

If you’re 73 or older, you’re required to take RMDs from retirement accounts:

  • Avoid Penalties: Failure to take your RMD by December 31 results in a 25% penalty on the amount not withdrawn.
  • Qualified Charitable Distributions (QCDs): Donate your RMD directly to a qualified charity to exclude the amount from taxable income (up to $100,000 annually).

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8. Watch for Tax Bracket Creep

Increased income could push you into a higher tax bracket, increasing your overall liability:

  • Delay Income: If you’re close to the next bracket, defer bonuses or self-employment income into January.
  • Accelerate Deductions: Take deductions in the current year to reduce taxable income.

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9. Leverage Charitable Giving

Charitable contributions are a powerful way to reduce taxes and give back to the community:

  • Donate Appreciated Assets: Instead of cash, donate stocks or property that have appreciated.  You’ll avoid capital gains taxes and can deduct the fair market value.
  • Donor-Advised Funds: Set up a fund for future charitable giving and receive an immediate tax deduction.

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10. Prepare for Upcoming Tax Law Changes

Stay informed about changes in tax laws that could affect your situation:

  • Expiration of Certain Provisions: Some tax cuts and benefits may phase out or expire in future years.
  • State-Specific Changes: State income tax laws vary, so review any updates for your location.

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11. Work with a Tax Professional

Navigating complex tax rules is challenging.  Consulting a CPA or Enrolled Agent can ensure:

  • Optimized Planning: Tailored advice for your unique financial situation.
  • Error-Free Filing: Avoid common mistakes that can trigger IRS audits.

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Final Thoughts: Plan Ahead With Expert Help

End-of-year tax planning is a golden opportunity to manage your finances strategically.  By taking proactive steps now, you can lower your tax liability, boost your savings, and start the new year with a solid financial foundation.

Need personalized assistance?  Contact a qualified tax professional to make the most of these strategies and tailor them to your needs.

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Question: If I receive a bonus or large payment in December but anticipate being in a lower tax bracket next year, is it ever wise to ask my employer to delay payment until January?

Answer: Yes — and that strategy is touched on under “Watch for Tax Bracket Creep,” but it's worth fleshing out. If you expect your income next year will be significantly lower (due to a job change, sabbatical, or retirement, for example), deferring income into the next tax year can reduce your overall tax rate on that amount. However, you’ll want to check these things first:

  • Whether your employer allows you to defer the payment (some don’t).

  • Whether you’ll still be in a favorable bracket next year (if you delay and your income stays high, you might get little benefit).

  • Whether any cash-flow or financial planning issues arise from delaying receipt.

  • Whether other factors (such as timing of deductions, retirement plan limits, or the alternative minimum tax) might offset the benefit.
    In short: it can be smart — but always coordinate with your tax professional.

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Question: I donated appreciated stock this year and took the deduction — how should I think about capital gains tax in future years from that same stock’s growth?

Answer: Great question. You get two main benefits when donating appreciated stock: one, you avoid paying capital gains tax on the appreciation; two, you can deduct the fair market value (generally) if you itemize — the blog covers this in “Leverage Charitable Giving.” But going forward you should also keep these points in mind:

  • The donated stock stops being part of your asset base — you won’t incur additional capital gains tax on it (which is good).

  • If you retain the stock instead of donating and later sell it, you’ll owe capital gains tax on the entire appreciation (unless you’re in a very low-tax bracket).

  • Donating appreciated stock can also influence your tax “mix” of income, deductions and gains in future years (especially if you have large gains or harvest losses).

  • Keep good records: you’ll need to show the cost basis (what you bought the stock for), the fair market value on the donation date, and evidence of the transaction (brokerage statements, charity receipts).
    So yes — donating appreciated stock is powerful, but thinking ahead about how it affects your portfolio and tax mix is smart.

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Question: I’m self-employed and pay estimated quarterly taxes. How should end-of-year planning differ for me compared to someone with only W-2 wages?

Answer: This is a very relevant concern for many entrepreneurs and freelancers and isn’t emphasized in depth in the blog. Some additional considerations for self-employed individuals:

  • Because you’re responsible for both income tax and self-employment tax (Social Security/Medicare), you might benefit from accelerating business expenses before December 31 — for example paying for necessary equipment, software subscriptions, or other deductible business costs early to reduce taxable profit.

  • You might also consider whether you can defer income (e.g., postponing a client invoice until January) or prepay expenses (e.g., insurance premiums for next year) to reduce this year’s net income — the blog touches on delay/accelerate tactics under bracket creep but doesn’t spotlight the SE tax angle.

  • Make sure your estimated tax payments for the year are adequate: if your income jumped in the back half of the year, you may owe under-payment penalties unless you pay a safe-harbor amount or adjust accordingly.

  • Review your retirement options specific to self-employment (e.g., solo 401(k), SEP IRA) before year-end — the blog mentions retirement contributions, but self-employed plans often have higher limits and more flexibility, which means bigger potential tax savings.

  • Finally, consider the business structure: if you formed an S-corp, for example, you might examine whether a reasonable salary was paid and whether additional distributions or payroll adjustments are warranted before year-end.
    In short: self-employed taxpayers have additional levers and risks — being proactive toward December 31 is especially important.

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