Strategic tax planning goes far beyond simply filing your returns—it’s about making informed, forward-thinking decisions that can have a substantial impact on your tax obligations. With year-end fast approaching, now is the ideal time to take a proactive approach to your taxes to potentially lower your 2024 tax bill.
Timing is critical, however, as many tax-saving strategies need to be in place by December 31st to be effective for this tax year. Since every individual’s tax situation is unique, we’ve outlined six powerful strategies to consider implementing before the year is out. These can help you minimize your tax burden and set yourself up for greater financial success in the year ahead.
Consider the following strategies to lower your 2024 tax bill:
#1: Maximize Retirement Contributions to Lower Your 2024 Tax Bill
As the end of the year approaches, maximizing your retirement contributions is one of the smartest ways to lower your 2024 tax bill while building long-term financial security.
For 2024, you can contribute up to $23,000 to your 401(k) plan, with an additional $7,500 catch-up contribution available if you’re 50 or older. If your employer offers a matching contribution, make sure you contribute at least enough to secure the full match. That’s essentially free money that boosts your retirement savings instantly.
Self-employed individuals have even more opportunities to lower taxable income. Plans like SEP IRAs and Solo 401(k)s allow contributions of up to $69,000, depending on your business income. These accounts provide high earners with a powerful tool to reduce taxes while saving for the future.
Finally, don’t forget about Individual Retirement Accounts (IRAs). In 2024, you can contribute up to $7,000 (or $8,000 if you’re 50 or older) to Traditional or Roth IRAs. While Traditional IRA contributions may lower your taxable income, Roth IRAs offer tax-free growth—but be aware of income limits that might restrict your ability to contribute directly to a Roth.
#2: Optimize Capital Gains and Losses
Proactively managing your investment gains and losses before year-end can be a smart way to lower your 2024 tax bill.
A key strategy to consider is tax-loss harvesting, which involves selling investments that have declined in value to offset your capital gains on a dollar-for-dollar basis. If your losses exceed your gains, you can deduct up to $3,000 against ordinary income, delivering an immediate tax benefit.
To maximize this strategy, it’s essential to understand the distinction between short-term and long-term capital gains. Gains from assets held for less than a year are taxed as ordinary income, with rates as high as 37% in 2024.
On the other hand, gains from assets held for over a year are taxed at the long-term capital gains rate, which is significantly lower at 15% or 20%, depending on your income level. Whenever possible, aim to hold onto appreciated investments until they qualify for the more favorable long-term rate.
Timing is also key. Selling investments with losses before December 31st ensures the tax benefits apply to the current year. Conversely, delaying the sale of appreciated assets until January can defer your tax obligation by an entire year.
Also, be mindful of the wash-sale rule, which disallows tax deductions for losses if you repurchase substantially identical securities within 30 days of the sale. Planning carefully around this rule can help you avoid unintended consequences while taking full advantage of your losses.
#3: Give Strategically to Lower Your 2024 Tax Bill
Year-end charitable contributions can be a highly effective way to lower your 2024 tax bill, especially when approached with strategy and foresight.
One powerful method is “bunching” your donations, which involves combining several years’ worth of planned contributions into a single tax year. This strategy is particularly advantageous if your total deductions are close to surpassing the standard deduction threshold ($14,600 for single filers and $29,200 for married couples filing jointly in 2024). By bunching, you can itemize your deductions in one year, maximizing the tax benefits of your generosity.
To make bunching even more impactful, consider using a Donor-Advised Fund (DAF). With a DAF, you can contribute several years’ worth of donations upfront and take the full tax deduction now, while maintaining the flexibility to distribute grants to your favorite charities over time. This approach offers both tax efficiency and consistency in your giving.
For individuals aged 70½ or older, Qualified Charitable Distributions (QCDs) provide another strategic option. In 2024, you can transfer up to $105,000 directly from your IRA to a qualified charity. This transfer not only satisfies your Required Minimum Distribution (RMD) but also keeps the amount out of your taxable income—effectively making it a tax-free charitable contribution.
By thoughtfully planning your charitable giving before December 31st, you can make a meaningful impact for the causes you care about while potentially achieving significant tax savings.
#4: Review and Adjust Withholding and Estimated Tax Payments
Now is the perfect time to evaluate your tax withholding and estimated payments to avoid unexpected surprises when filing your 2024 tax return. To sidestep underpayment penalties, make sure you’re paying at least 90% of this year’s tax liability or 100% of last year’s tax bill (or 110% if your income exceeds $150,000).
This review is particularly important if your income has significantly changed. For example, a large bonus, equity compensation, or notable investment gains can create a mismatch between your withholding and actual tax obligations. Similarly, stock option exercises and restricted stock unit (RSU) vests often have standard withholding rates that may fall short of covering the full tax due, especially for higher earners.
Don’t forget to factor in state and local tax requirements, especially if you live in a high-tax state. Even if your federal withholding is on track, your state tax obligations might not align.
To address any shortfalls, consider increasing withholding from your remaining paychecks in 2024. Alternatively, you can make an estimated tax payment by January 15, 2025, to close any gaps and avoid penalties.
#5: Take Required Minimum Distributions (RMDs) Strategically
If you’re subject to Required Minimum Distributions (RMDs), it’s crucial to make these withdrawals before year-end to avoid steep penalties. However, recent updates under the SECURE Act 2.0 have changed some RMD rules, offering additional flexibility for certain individuals.
For example, if you turned 72 after December 31, 2022, you can now delay your first RMD until age 73. If you were born in 1960 or later, your RMDs won’t start until age 75. Once you reach your required age, annual withdrawals become mandatory, so incorporating RMDs into your broader tax strategy is essential to avoid unexpected tax impacts.
If you don’t need the extra income, consider using a Qualified Charitable Distribution (QCD) to fulfill your RMD obligation and potentially lower your 2024 tax bill. With a QCD, you can transfer up to $105,000 directly from your IRA to a qualified charity. This approach allows you to satisfy your RMD requirements while excluding the distribution from your taxable income, benefiting your finances and the charitable causes you support.
#6: Plan for Gift and Estate Tax Exemptions Strategically
With changes to estate tax laws potentially on the horizon, now is the time to revisit your wealth transfer strategy. Currently, the lifetime estate and gift tax exemption stands at $13.61 million per person in 2024. However, this generous exemption is scheduled to drop significantly after 2025 unless Congress votes to extend key provisions of the Tax Cuts and Jobs Act.
One effective way to reduce your taxable estate is by utilizing the annual gift tax exclusion, which allows you to gift up to $18,000 per recipient in 2024 without affecting your lifetime exemption. Married couples can combine their exclusions to gift up to $36,000 per recipient annually, making this a powerful tool for transferring wealth to loved ones while minimizing future tax exposure.
For larger wealth transfers, now might be an ideal time to take advantage of the current higher lifetime exemption. Potential strategies include making direct gifts, funding education savings accounts, or establishing irrevocable trusts to preserve wealth for future generations. By acting now, you can lock in today’s favorable limits and potentially save your estate substantial taxes down the road.
TrueNorth Wealth Is Here to Help
Proactive year-end tax planning can be a powerful way to lower your 2024 tax bill while strengthening your overall financial well-being. While the strategies outlined here offer a strong starting point for tax-efficient wealth management, your unique financial situation may uncover additional opportunities or require tailored adjustments to maximize savings.
To fully leverage these tax-saving strategies, working with an experienced professional can be invaluable. At TrueNorth Wealth, our team of fiduciary CFP® professionals will work with you to craft a customized financial plan that aligns with your tax needs and supports your broader financial goals, minimizing your tax burden and setting a strong foundation for your financial future.
TrueNorth Wealth is among the top Wealth Management firms in Utah and Idaho, with offices in Salt Lake City, Logan, St. George, and Boise. At TrueNorth Wealth, we focus on helping our clients build long-term wealth while maximizing the enjoyment they receive from their money. We do this by pairing our clients with a dedicated CFP® professional backed by an incredible team.
For our team at TrueNorth, it’s about so much more than money. It’s about serving families all across Utah and helping them achieve freedom and flexibility in their lives. To learn more or schedule a free strategy session, visit our website at TrueNorth Wealth or call (801) 316-1875.
