In today’s 2024 Year-End Tax Planning Checklist:

• New ways to Max Out Your Retirement Accounts…

• Creative ways to Give to a Cause…

• 3 Ways to Optimize Capital Gains…

• Advanced tactics for Giving to Your Family…

• Top strategies to Unlock Real Estate Tax Breaks…

• Interesting ways to Deduct Your Healthcare Costs…

• Two hacks to turbocharge your Retirement Plans…

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WEEKLY WISDOM

SPECIAL EDITION

2024 Year-End Tax Planning Checklist

With 2024 ending and tax rates set to rise in 2025 as TCJA cuts expire, now is the time to act. Maximize savings, optimize investments, and prepare for higher taxes ahead. This edition covers smart strategies to lower your tax burden and grow your wealth before the year wraps up.

💰 Max Out Your Retirement Accounts

Before jumping into a standard brokerage account, make sure you’re taking full advantage of tax-advantaged retirement accounts. Here’s the usual order:

1. Employee Match

Always max out your employer match on your retirement plan first. It’s essentially free money you’re leaving on the table if you don’t. Take it before it’s gone!

2. Roth Retirement Plan

Contribute the maximum to your Roth 401(k) ($23,000) or Roth IRA ($7,000). While you’ll pay taxes on this money in 2024, all the future growth will be tax-free. If you have a long time before retirement, this is one of the best deals in investing. Just watch out for income phase-out limits.

3. Traditional 401(k) or IRA

Next, max out your traditional 401(k) ($23,000 combined with Roth contributions) or traditional IRA ($7,000 combined with Roth). These accounts let your money grow tax-free until retirement when you’ll pay taxes on withdrawals. This strategy can save you a significant amount in taxes while your investments compound over the years.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

🏥 Give to a Cause

Open a Donor-Advised Fund (DAF)

Want to make a tax-deductible contribution this year but unsure where to give? Consider a Donor-Advised Fund (DAF).

A DAF lets you take the tax deduction now while giving you time to decide where to donate. The funds can be invested and grow tax-free until you’re ready to make a gift, though you’ll typically need to distribute at least 5% of the balance annually.

Donate Appreciated Securities Instead of Cash

Do you have investments that have grown significantly? Donate those appreciated securities directly instead of cash, and you’ll avoid paying capital gains tax while receiving a tax deduction for their full current value.

This strategy lets you 1) avoid the capital gains tax entirely and 2) take a deduction of up to 30% of your Adjusted Gross Income (AGI). While the AGI limit is lower than the 60% allowed for cash donations, the tax benefits can be substantial.

Learn more from the IRS.

Consider a Charitable Remainder Trust (CRT)

For larger donations, like after selling a business, a Charitable Remainder Trust (CRT) could be ideal.

With a CRT, you make a significant contribution to an irrevocable trust, which is invested. The trust pays you or a designated beneficiary regular income, often for life. After that, the remaining balance goes to the charity of your choice.

CRTs offer a meaningful tax deduction upfront and a steady income stream. However, setup costs can range from $5,000 to $50,000, so they’re best suited for significant contributions.

📈 Optimize Capital Gains

Tax-Loss Harvesting

If 2024 has been a great year for your portfolio but you’re holding some losers—like a bond fund that struggled with rate hikes—you might consider tax-loss harvesting. Selling a losing position can offset the gains from other investments, reducing your tax bill.

Just remember the IRS wash sale rule: you can’t repurchase the same investment for 30 days after selling it.

This strategy works for crypto, too. If you’re ready to move on from a meme coin that didn’t pan out, now might be the time to sell and reinvest in something with more potential.

Long-Term vs. Short-Term

Before selling, check how long you’ve held your investments. If you’ve owned them for less than a year, they’ll be taxed as short-term gains, which means they’re taxed at your ordinary income rate—the highest rate. Holding investments for over a year qualifies them for lower long-term capital gains tax rates, saving you money.

Zero Capital Gains Strategy

For those with lower incomes, a zero-capital-gains strategy could save you a bundle. If your income is below $44,625 (single) or $89,250 (married filing jointly), you can sell investments and pay no capital gains tax on the profits.

For example, a family earning $50,000 in 2024 could sell up to $40,000 in gains tax-free. Note: that’s $40,000 in gains, not total value. So, if they bought one Bitcoin for $50,000 and it’s now worth $90,000, they could sell it without paying capital gains tax.

👨‍👩‍👦‍👦 Give to Your Family

Use the Annual Gift Tax Exclusion

In 2024, you can gift up to $18,000 per person tax-free. If you're married, you and your spouse can each give that amount. For example, parents with three children can give up to $108,000 total ($18,000 x 2 parents x 3 kids) without touching their lifetime exemption.

If you trust your children or have safeguards like trusts or family limited partnerships in place, giving during your lifetime can be more tax-efficient than waiting until after death.

Learn more from the IRS.

Supercharge 529 Plans

Want to make a gift that grows tax-free and ensures a brighter future? Consider contributing to 529 plans for your kids or grandkids. The usual $18,000 per child annual limit applies, but you can front-load up to five years' worth of contributions at once.

For example, a married couple with three kids could contribute $540,000 total ($18,000 x 2 parents x 3 kids x 5 years). This reduces their taxable estate, grows tax-free, and funds education. That’s a win-win-win.

Use Your Lifetime Gift Exemption Before It Shrinks

If your estate exceeds $13.6MM (single) or $27.2MM (married), consider making large gifts now. The lifetime gift exemption will drop significantly in 2026, potentially down to $6MM-$12MM.

Using today’s higher exemption could save up to 40% in estate taxes on the excess. Giving now is likely cheaper than giving later.

Read more about the estate tax.

Create a Grantor Retained Annuity Trust (GRAT)

Want to keep income for yourself while transferring wealth to heirs tax-efficiently? A GRAT could be the answer.

You set up the trust, fund it, and receive annuity payments. Any investment growth above the IRS’s assumed rate (currently 5.5%) passes to your heirs tax-free. This strategy works best for high-net-worth individuals above the lifetime exemption limit.

Explore GRATs.

Set Up a Family Limited Partnership (FLP)

Need to transfer wealth but want to maintain control? An FLP allows you to gift partnership shares to heirs while keeping management authority.

You form the partnership, allocate shares as gifts, and reduce your taxable estate. Your heirs benefit from ownership, but you retain control over investment decisions. It’s an excellent tool for combining tax savings with control.

Learn about FLPs.

🏠 Unlock Real Estate Tax Breaks

Document Your Real Estate Professional Designation

Planning to leverage advanced real estate tax strategies? Make sure you qualify as a real estate professional by documenting at least 750 hours of active participation in real estate activities.

If you qualify, your real estate income won’t be considered passive, allowing you to fully utilize powerful tax tools like cost segregation and bonus depreciation.

Read more about the requirements here.

Complete Cost-Segregation Studies

Want to maximize tax deductions on your real estate investments? A cost-segregation study is your key.

These studies break down the components of your property—like lighting, HVAC, and carpeting—into shorter depreciation schedules, allowing you to take larger deductions earlier.

2024 is especially advantageous because of the 60% bonus depreciation rule, which lets you accelerate 60% of your property’s depreciation this year.

Finalize Any Like-Kind Exchanges (1031)

Selling a property but don’t want to pay taxes on the gains? A 1031 exchange allows you to defer those taxes by reinvesting the proceeds into a new property.

Here’s how it works:

1. Use a Qualified Intermediary to hold the funds from the sale.

2. Identify your replacement property within 45 days.

3. Close on it within 180 days.

The paperwork can be tedious, but the tax savings are worth it.

Kill Capital Gains with Qualified Opportunity Zones (QOZ)

Faced with a big capital gains tax bill? Invest the proceeds into a Qualified Opportunity Zone fund to defer the tax until December 2026.

Here’s the kicker: if the fund holds the property for 10+ years, any appreciation on the investment becomes tax-free. That’s right—zero tax on future gains.

Just remember, you’ll need to have the cash ready to pay the deferred tax by the 2026 deadline.

🏢 Optimize Business Expenses

Pay Business Invoices Early

If 2024 was a profitable year for your business and you use cash-basis accounting, paying invoices early can help reduce your tax burden. By settling bills before December 31, you can count them as expenses for 2024 instead of pushing them into 2025. This simple cash management strategy can give you a tax advantage. And if a few clients delay payments into the new year, that could further lower your taxable income for 2024.

Invest in Equipment (Section 179)

Thinking about upgrading your equipment? Buying it in 2024 can offer a significant tax break. Under Section 179, you can deduct up to $1.2 million in equipment purchases, reducing the net cost by your tax rate.

For example, if you spend $1 million on computers or machinery and your tax rate is 35%, the after-tax cost drops to $650,000. If you’re going to spend the money anyway, making the purchase this year can be a smart move.

Leverage Bonus Depreciation

If your equipment expenses exceed the Section 179 limit, you can use bonus depreciation. In 2024, this allows you to deduct 60% of the remaining cost.

For instance, if you spend $2 million on machinery, you can take a $1.2 million deduction under Section 179 and apply bonus depreciation to 60% of the remaining $800,000, saving an additional $168,000 in taxes.

Claim R&D Credits

If your business invests in technology, systems, or other innovations, you may qualify for a research and development (R&D) tax credit. The requirements are broad but exclude marketing and routine updates. Eligible companies can claim up to $500,000 in credits to offset payroll taxes, with unused credits carrying forward for up to 20 years. Remember, tax credits reduce your tax bill dollar-for-dollar—don’t overlook this opportunity.

Submit Expense Reports

Ensure your business reimburses you for expenses rather than reporting them on your personal tax return. Proper documentation reduces audit risk.

• Mileage: Track your vehicle mileage and claim the IRS rate of $0.67 per mile. Every 100 miles equals a $67 deduction.

• Home Office: Have your business reimburse you for the portion of your home used for work, including rent/mortgage and utilities.

• Meals and Entertainment: File reports for any eligible expenses before year-end.

Keeping expense records organized ensures cleaner tax filings and minimizes potential headaches during an audit.

💊 Check Up on Your Healthcare Costs

Max Out Your Health Savings Account (HSA)

Take advantage of the triple-tax benefit that makes an HSA one of the best deals in the tax code:

1. Contributions are tax-deductible.

2. Growth inside the account is tax-free.

3. Withdrawals for qualified medical expenses are tax-free.

For 2024, the contribution limits are $4,150 for singles and $8,300 for families, with an extra $1,000 catch-up contribution for those over 55. Don’t miss this shrewd opportunity to save.

Track Medical Expenses

If 2024 brought high medical bills from a birth, surgery, or other major events, you may qualify to deduct those costs if they exceed 7.5% of your adjusted gross income (AGI).

Keep thorough documentation for all qualified healthcare expenses to maximize your benefit. Don’t forget: mileage for medical travel is deductible at $0.21 per mile—every 100 miles reduces taxable income by $21.

Use Your Flexible Spending Account (FSA)

If your employer offers an FSA, make sure to use any remaining balance before the end of the year. FSAs are typically "use-it-or-lose-it," so book those doctor’s appointments or make eligible purchases now.

Some plans may allow a brief grace period into the new year—double-check with your plan administrator to avoid leaving money on the table.

♻️ Retirement Plan Conversions

Roth Conversion

If you’re in a low tax year, consider converting some or all of your traditional IRA to a Roth IRA. The benefit? Tax-free growth forever. The downside? You’ll pay taxes on the converted amount now.

This move makes sense if you can convert at a low tax rate. For example, a recently retired couple with no income could convert $94,300 and only pay taxes at the 12% rate. That money would then grow tax-free for life—a great long-term win.

Mega Backdoor Roth

Even if your traditional IRA is maxed out, you may still be able to grow your Roth through a Mega Backdoor Roth Conversion. This strategy involves making a taxable contribution to your traditional IRA and then converting it to your Roth.

It’s a bit more complex because you’ll need to calculate contribution limits and account for existing tax-deferred contributions. Plus, not all plans allow this option.

However, if yours does and you’re willing to pay taxes now, this move can add significant value to your portfolio over the years.

The content provided in this newsletter is for informational purposes only and should not be considered as specific advice for any specific individual. The information is prepared by knowledgeable individuals and is not written by certified tax professionals or investment advisors. For personalized advice tailored to your unique financial situation, please consult with a qualified tax professional or financial advisor.

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