8 Year-End Tax Planning Strategies to Reduce Your 2024 Tax Bill

As we approach the end of the year, now is the perfect time to focus on proactive tax planning to reduce your 2024 tax bill. Taking advantage of year-end tax strategies can help you strengthen your financial position and minimize your tax burden, both now and in the year to come.

With tax laws constantly evolving and certain provisions subject to change, it’s wise to review your finances and identify strategic moves to make before December 31st. From maximizing retirement contributions to making charitable donations, these actions can have a meaningful impact on your tax situation and overall financial well-being.

Consider the following strategies to reduce your 2024 tax bill:

#1: Maximize Retirement Account Contributions

Maximizing your retirement account contributions is one of the most powerful year-end tax strategies available. Not only does this approach help plan your future, but contributions to traditional accounts—for example, a 401(k) or IRA—can also help reduce your 2024 tax bill.

For 2024, employees can contribute up to $23,000 to 401(k), 403(b), and most 457 plans, with an additional $7,500 catch-up contribution available for those age 50 and older. If you’re self-employed, a SEP IRA allows contributions up to 25% of your compensation or $69,000, whichever is lower.

For additional tax-advantaged growth, consider contributing extra cash to a traditional or Roth Individual Retirement Account (IRA). In 2024, the IRA contribution limit is $7,000, with an additional $1,000 catch-up for individuals 50 and older.

Contributing to a traditional retirement account can lower your taxable income for the year, as you may be eligible to deduct a portion of your contribution. This immediate tax benefit makes traditional accounts a valuable tool for tax planning.

Roth IRAs, on the other hand, don’t offer immediate tax deductions. However, they do provide tax-free growth and withdrawals in retirement, making them a valuable part of a well-rounded retirement strategy. Just be aware that income limits may restrict direct contributions to a Roth IRA, so it’s important to review your eligibility based on your income level.

#2: Strategically Manage Capital Gains and Losses to Reduce Your 2024 Tax Bill

Tax-loss harvesting can be a valuable strategy for managing your tax liability, particularly in times of market volatility. By selling investments at a loss, you can offset capital gains from other investments, potentially reducing your taxable income by as much as $3,000 annually.

However, it’s important to understand the difference between short-term and long-term capital gains when implementing this strategy. Gains from investments you’ve held for less than one year are subject to your ordinary income tax rate. Meanwhile, gains on assets you’ve held for more than one year benefit from lower long-term capital gains rates, typically 0%, 15%, or 20%, depending on your income.

In addition, timing is key with tax-loss harvesting. To reduce your 2024 tax bill, be mindful of the wash-sale rule, which disallows claiming a tax loss if you repurchase the same or a substantially identical security within 30 days before or after the sale. Violating this rule means you can’t claim the loss on your taxes.

#3: Review and Adjust Withholding Tax and Estimated Tax Payments

Regularly reviewing your tax withholding and estimated payments is essential for preventing unpleasant surprises at tax time. The IRS requires you to pay at least 90% of your current year’s tax liability or 100% of last year’s liability (110% if your income is over $150,000) to avoid underpayment penalties. Using the IRS withholding estimator can help you determine if your current withholding is sufficient.

This review is especially important if you’ve experienced significant financial changes—such as a new job, self-employment income, or the vesting of substantial RSUs—that could affect your tax obligations. These events may necessitate adjustments to your withholding or estimated payments to keep you on track.

Additionally, don’t forget to consider state and local taxes. Different states may have unique withholding rules and estimated payment schedules, which is especially relevant if you’ve recently moved or work remotely across state lines.

#4: Optimize Your Charitable Giving

Strategic charitable giving allows you to support the causes that matter most to you while also providing an opportunity to reduce your 2024 tax bill. With careful planning, you can enhance both your charitable impact and tax benefits.

One effective strategy is “bunching” multiple years’ worth of charitable contributions into a single tax year to exceed the standard deduction, allowing you to itemize deductions. Donor-advised funds (DAFs) can be a great tool for this approach, enabling you to take an immediate tax deduction while granting funds to charities over time.

Donating appreciated stocks or other long-term securities instead of cash can also offer significant advantages. By donating securities you’ve held for over a year, you can potentially deduct the full market value of the donation and avoid the capital gains tax you’d owe if you sold the assets first.

#5: Approach RMDs Strategically to Reduce Your 2024 Tax Bill

Required Minimum Distributions (RMDs) demand close attention to avoid steep penalties and manage your tax liability effectively. With the SECURE Act 2.0, the age for starting RMDs has increased to 73 for those turning 72 after December 31, 2022, and will rise further to 75 in 2033.

Missing an RMD deadline can result in a significant penalty—25% of the missed amount, though this may be reduced to 10% if corrected promptly. This underscores the importance of accurately calculating and timing your RMD.

For those who don’t need their full RMD for living expenses, Qualified Charitable Distributions (QCDs) can help reduce your 2024 tax bill. In 2024, you can direct up to $105,000 from your IRA to qualified charities, fulfilling your RMD requirement while excluding the amount from your taxable income. This can help lower your tax bracket and reduce other tax-related impacts, such as Medicare premiums.

#6: Invest in Sustainable Home Improvements

Investing in sustainable home improvements can deliver environmental rewards and potentially reduce your 2024 tax bill. Recent legislation has expanded and extended a range of tax incentives for energy-efficient upgrades, making this an ideal time to enhance your home’s efficiency.

Eligible improvements include solar panels, energy-efficient windows and doors, heat pumps, and home battery storage systems. With the Energy Efficient Home Improvement Credit, homeowners can claim up to $3,200 per year for qualifying upgrades. Solar panel installations are especially advantageous, offering a 30% tax credit on the total cost with no cap on the amount.

To fully benefit from these incentives, be sure to keep comprehensive records of your improvements, including manufacturer certifications, receipts, and contractor documentation. You’ll also want to verify that your chosen products meet specific efficiency standards, as not all energy-efficient items qualify for credits.

#7: Consider Prepaying State and Local Taxes (SALT) If Appropriate

For residents of high-tax states, effectively managing state and local tax (SALT) deductions can be challenging under the current $10,000 federal deduction cap. This limit significantly impacts taxpayers in states like California, New York, and New Jersey, where state and local taxes often surpass this threshold.

One potential strategy is to prepay your state and local taxes before December 31st if you’re itemizing deductions and haven’t yet hit the SALT cap. This can help you maximize your deductible expenses and potentially reduce your 2024 tax bill by lowering your taxable income for the current tax year.

However, this approach may not be beneficial for everyone—particularly those subject to the Alternative Minimum Tax (AMT). Since SALT payments aren’t deductible under the AMT, prepaying these taxes may not reduce your tax liability and could result in no additional tax savings.

Remember, prepaying doesn’t increase your deductions; it only affects the timing of when they’re available for claim. Consulting a tax professional can help you determine the most strategic timing based on your specific circumstances.

#8: Leverage Lifetime Gift and Estate Tax Exemptions

Estate planning and lifetime gifting can be effective strategies for managing your tax liability and providing meaningful support to your loved ones. In 2024, the lifetime estate and gift tax exemption is $13.61 million per individual ($27.22 million for married couples), creating substantial opportunities for efficiently transferring wealth.

Under the annual gift tax exclusion, you can gift up to $18,000 per recipient in 2024 without it affecting your lifetime exemption. Meanwhile, married couples can combine their exclusions to give up to $36,000 per recipient, an effective approach for reducing your taxable estate while providing financial assistance to family members.

Strategically gifting appreciated assets can also be advantageous. Although the recipients inherit your cost basis, they can enjoy future gains outside of your estate, potentially lowering future tax exposure.

Additionally, consider making direct payments to educational or medical institutions on behalf of others. These payments don’t count toward your annual gift exclusion, allowing you to support loved ones without impacting your gifting limits.

While these strategies may not reduce your 2024 tax bill, they can help set the stage for future tax benefits. Be sure to document all gifts thoroughly and consult with your financial planner and estate planning attorney to develop a tailored strategy and ensure you’re taking full advantage of your options.

Take Action Now to Reduce Your 2024 Tax Bill

Effective tax planning requires attention and timely action, especially as the end of the year draws near. While these strategies can meaningfully reduce your 2024 tax bill, remember that tax planning is an ongoing process that you should revisit and adjust regularly to reflect changes in your financial situation and evolving tax laws.

Partnering with an experienced financial advisor can be invaluable when it comes to managing your money and tax strategy. At SageMint Wealth, we specialize in wealth management for high-net-worth individuals, families, and business owners, with a commitment to building wealth while contributing to a better world.

Our team is dedicated to creating personalized tax strategies that seek to optimize your financial position today and establish a strong foundation for the future. Contact us to learn how we can help you manage your financial resources and pursue your long-term goals.