Maximize your 2024 tax position: A guide to year-end tax-saving options

Tax policy has been a hot topic this election cycle. It is not surprising given the looming December 31, 2025, expiration of sweeping tax cuts provided in the 2017 Tax Cuts and Jobs Act. There is much anticipation as we await future tax policy changes. Even through the noise of the most recent presidential election, and the unknowns of potential future tax law changes, there are plenty of tried-and-true tax-saving action items to consider before 2024 ends.

Deferring or accelerating income and deductions

If you anticipate your 2024 AGI to be lower than usual, you might consider accelerating income into 2024. Some ways to accelerate your income include:

• A year-end bonus: Take a year-end bonus payout before year-end.
• Retirement distribution: If you are over the age of 59 1/2 and can avoid a penalty.
• IRA conversion: Convert all or a portion of your Traditional IRA to a Roth IRA, which creates taxable income in the current year but allows for tax-free distributions in future years.
• Exercise of stock options: Convert your stock options into liquidity.

If you are trying to reduce your AGI because you are having an unusually high-income year, you might hold off or delay these action items to a future year when your income is expected to be lower. Some additional ways to reduce income:

• Qualified charitable distribution: If you are age 70 1/2 or older, you can distribute up to $105,000 directly from your IRA to a qualified charity. The QCD amount is non-taxable and might satisfy all or a portion of your required minimum distribution (RMD).
• Tax loss harvesting: Recognizing tax losses to help offset reportable capital gains in the same tax year.
• Expense bunching: Consider bunching medical expenses and/or charitable contributions into one tax year to exceed the standard deduction thresholds for increased tax savings.

2024 standard deductions

Single                                                                                               $14,600

Additional standard deduction if over age 65                         $1,950

Married filing jointly                                                                    $29,200

Additional standard deduction if over age 65, each              $1,550

Retirement accounts

Regardless of who or what party is sitting in the White House, you should always make your retirement a priority.

• If you participate in an employer-sponsored plan, be sure you are maximizing your full 2024 annual contribution. If you are 50 years or older, additional catch-up contributions are allowed.
• A Roth 401(k) may be a good option if you expect to be in a higher tax bracket when you retire, as the distributions will be tax-free. Or you may choose to split your contributions between a 401(k) and Roth 401(k) to help balance taxable and non-taxable income during retirement years.
• Making a deductible IRA contribution can also save you some tax dollars. Keep in mind, you have until April 15, 2025 to make an IRA contribution for the 2024 tax year.

See retirement contribution limits below:

401(k) and 403(b) Employee maximum deferral contributions (includes Roth 401(k))               $23,000

Catch-up contribution (if age 50 or older)                                                                                            $7,500

Maximum IRA contribution (cannot exceed total compensation)                                                   $7,000

IRA catch-up contribution (if age 50 or older)                                                                                     $1,000

Maximum SEP contribution — the lesser of 25% of eligible compensation or                          $69,000

If you reached age 73 in 2024 and have a traditional IRA, you have until April 1, 2025, to take your first RMD. But keep in mind, you will also be required to take your 2025 RMD on or before December 31, 2025. You should consider the tax effects of creating double income in 2025 before delaying your first RMD into a subsequent tax year.

Estate and gift taxes

You have likely heard the buzz around the estate tax exemption sunsetting on December 31, 2025. Without legislative action, the current estate exemption of $13.61 million is set to be reduced by approximately 50%, potentially subjecting many taxpayers to the 40% estate tax upon death. If you expect your gross estate to exceed these exemption amounts, you should meet with an estate planning professional and tax professional as soon as possible to develop a plan to reduce your taxable estate.

In 2024, an individual may transfer up to $18,000 per person to any number of individuals and avoid paying gift tax or using any lifetime exemption. These gifts help reduce your taxable estate. This includes gifts to 529 college savings plans.

529 college savings plans

• Tax regulations allow you to “superfund” a 529 plan by making five years of annual gifts in one tax year. For 2024, this could be $90,000 or $180,000 if you are married. This large gift reduces your gross estate and allows the money to grow tax-free over a longer period.
• Many states offer tax deductions for contributions to 529 plans.
• Distributions from 529 plans are tax-free to the beneficiary if used for qualified education expenses.
• Distributions are allowed if tuition is covered by a scholarship. However, the earnings on the distribution will be taxable.
• If the 529 plan is overfunded, the plan beneficiary can be changed to a family member of the existing beneficiary with no tax consequences.
• At the end of 2022, Congress passed the SECURE 2.0 Act, which allows up to $35,000 of unused 529 plan funds to be rolled into a Roth IRA for the 529 plan beneficiary if the account has been open for 15 years.

Health Savings Accounts

If you are enrolled in a high-deductible health insurance plan, you should consider opening a Health Savings Account (HSA). 

• Contributions to HSAs are tax-deductible, and distributions, including earnings, used for qualified medical expenses are tax-free.
• Distributions made after age 65 are not subject to a penalty, regardless of use, allowing the HSA to be treated like a retirement account.

2024 maximum contribution – single coverage                                                                               $4,150

2024 maximum contribution – family coverage                                                                               $8,300

Catch-up contribution (age 55 or older)                                                                                           $1,000

Beneficial ownership information (BOI) report required by the Corporate Transparency Act (CTA)

Beginning in 2024, an estimated 33 million small businesses will be required to comply with the new BOI reporting requirement. The new law requires nonexempt entities formed after January 1, 2024, to file initial reports within 90 days of formation, and pre-2024 nonexempt entities are required to file initial reports by January 1, 2025.

These filings help the government combat money laundering by tracking beneficial ownership of entities. Because compliance requires reviewing legal documents, we recommend consulting with legal counsel.

How Wipfli can help

While these tax-planning strategies mentioned above can help reduce tax, they are not one-size-fits-all. Each taxpayer needs to individually consider each planning strategy based on their specific situation. Wipfli’s tax professionals can help you review your tax situation and determine the best strategies for you. Contact us to learn more.