As the year comes to a close, strategic tax planning can position you to minimize liabilities and enhance your financial health.
At a Glance
- Defer income to manage tax payments, particularly applicable to self-employed individuals.
- Accelerate deductions through charitable contributions and deductible expenses.
- Maximize contributions to retirement accounts for tax optimization.
- Plan for life changes that could impact tax returns.
Evaluating Income Deferment and Deduction Acceleration
Deferring income is a viable tax planning strategy, particularly for self-employed or freelance workers. Earnings shifted to the next year can enable tax payments to be postponed, allowing more liquidity and control over immediate finances. Another effective tactic is accelerating tax deductions, such as engaged charitable contributions, enabling taxable income reduction.
Both strategies hinge on current tax laws and individual financial situations. Mark R. Parthemer from TIAA advises, “Accelerate deductions into the current tax year and defer income into the next.” This approach stabilizes tax burdens, ensuring taxpayers take full advantage of available benefits.
7 Year-End Tax Planning Tips for Individuals. As the holidays approach, it’s time to consider tax planning moves that will help lower your 2024 taxes, as well as set you up for tax savings in future years. Here are seven year-end tax… Read more: https://t.co/5QN3yW1u7G pic.twitter.com/8im6iTNwwu
— TWHC (@TWHC_CPA) November 14, 2024
Using Tax-Advantaged Accounts to Optimize Savings
Maximizing retirement contributions to accounts like 401(k)s and IRAs can drastically lower taxable income while funding future endeavors. For individuals poised to retire, these efforts manifest in comprehensive financial readiness, allowing one to capitalize on benefits fully.
Colleen Carcone, Director of Wealth Planning Strategies at TIAA, “…urges those who normally take required minimum distributions in January, and do not anticipate needing that income to pay for essential living expenses” … to reach out to an advisor.
Tax loss harvesting involves relinquishing underperforming investments to offset capital gains, a widely adopted tactic during economic downturns. This ensures portfolio balance and prudent gain realization without excessive taxation.
Navigating Life Events and Tax Implications
Marriages, births, and even retirements significantly influence filing status and tax obligations. Revisiting legal withholdings or estimated payments ensures alignment with modified circumstances, preventing unexpected liabilities.
“Today’s historically low AFR rates make this a good time to consider the advantages of intrafamily loans or to refinance an existing note that may have a higher interest rate,” – Mark R. Parthemer.
Meanwhile, utilizing Flexible Spending Accounts and the use it or lose it principle safeguards funds from expiration. These strategic considerations pave the way for a financially secure new year.
