As the year ends, ensure you take every opportunity to reduce your tax bill and keep more of your hard-earned money.
It may not seem like much, but if you prepare, you can save thousands of dollars in each area.
Which can add up and have a compound effect of millions of dollars over your lifetime.
If you apply this every year, you'll be amazed at how much your net worth increases over your lifetime.
This advice comes from someone who learned these strategies decades ago and successfully boosted their wealth accumulation.
I wrote seven tax moves for you to implement. How many are applicable to you, and how many are you already executing?
Boost Your Retirement Contributions
Contributing to your retirement accounts is one of the best year-end moves to lower your taxable income.
Increasing your 401(k) or IRA contributions before year-end can be a game-changer if you haven't yet maxed out.
In 2024, you can contribute up to $23,000 to a 401(k) or up to $30,500 if you’re over 50.
For IRAs, you can contribute up to $7,000 or $8,000 if you’re 50 or older.
If you’re considering a Roth conversion, doing it before December 31 can set you up for long-term tax-free growth.
A Roth conversion lets you pay taxes now, but any future growth is tax-free.
This is a strong move if you expect your income to increase in future years.
Optimize Your Business Deductions
If you own a business, now is the time to look at making any necessary purchases.
Every qualifying purchase before December 31 could reduce your 2024 tax bill.
Consider using bonus depreciation to deduct 60% of qualified assets, like new or used equipment, if they’re in service this year.
This deduction drops to 40% in 2025, so if you’re considering a new business vehicle, it’s smart to act now.
With Section 179, you can deduct up to $30,500 on qualified SUVs, trucks, and vans.
You can lock in these savings if the asset is used before December 31.
Hire Your Family (the Right Way)
Hiring family members is a tax-efficient way to reduce taxable income while supporting your household.
For children under 18, wages are generally FICA tax-free, which reduces your business’s taxable income.
If you have older children or relatives, consider 1099 payments for freelance-type work.
Document all payments before December 31 and keep clear records to ensure these deductions are legitimate.
Harvest Investment Losses
Selling underperforming assets before year-end can help you offset gains from other investments.
For stocks, be mindful of the 30-day wash-sale rule, which requires you to wait 30 days before repurchasing the same or a similar security.
The wash-sale rule doesn’t apply to crypto, so that you can sell for a loss and repurchase immediately.
This makes crypto tax-loss harvesting especially flexible.
You can deduct up to $3,000 in excess capital losses against ordinary yearly income.
Make Charitable Contributions
Charitable donations support causes you care about and reduce your tax bill.
Cash donations are deductible up to 60% of your adjusted gross income (AGI).
Non-cash donations, such as household goods, are deductible at fair market value, but make sure to get a receipt.
Donations made by credit card before December 31 count for 2024, even if you pay the bill later.
For qualified charitable distributions (QCDs) from IRAs, individuals age 70½ or older can transfer up to $105,000 directly to charity in 2024.
Prepay Certain Business Expenses
Prepaying some 2025 business expenses can boost your deductions now.
Consider expenses like rent, utilities, or service contracts if cash flow allows.
Prepaying allows you to claim these deductions in 2024.
This can be especially beneficial if your income fluctuates from year to year.
Prepay State Income Taxes
Preparing state income taxes by December 31 may reduce federal taxable income for high-income earners.
The State and Local Tax (SALT) deduction is capped at $10,000 for combined state and local taxes, so this may be beneficial if you’re maximizing itemized deductions.
If subject to the Alternative Minimum Tax (AMT), this could limit the benefit.
Consulting with a CPA on this step ensures it aligns with your specific tax situation.
In Summary
Year-end tax planning can significantly lower your tax bill, but you must act by December 31.
From maximizing retirement contributions to making business purchases, each move matters.
These steps can help you keep more of your wealth in 2024.
Consult with a tax advisor to ensure your strategies are optimized for your unique situation.
