As the year draws to a close, it’s time to take stock of your financial situation and prepare for tax season. Effective year-end tax planning can help you minimize your liabilities, maximize deductions, and ensure a smoother filing process come April. Whether you’re an individual or a business owner, the right strategies can lead to significant savings and financial peace of mind.
Basta + Croop, a trusted accounting firm in Charlotte, NC, specializes in personalized tax planning. Our team is here to guide you through the steps you should take before the calendar year ends to ensure you’re well-prepared for tax season. From optimizing deductions to making timely contributions, these tips will help you close out the year on solid financial footing.
Review and Organize Your Financial Documents
One of the most crucial steps in year-end tax planning is ensuring that all your financial records are accurate and up to date. Review your income statements, expense records, and receipts for any deductible expenses. Organizing these documents now will save you time and stress during tax season and help you identify potential deductions or credits.
For businesses, this process includes reconciling your books, reviewing accounts receivable and payable, and ensuring that your payroll records are accurate. For individuals, focus on gathering W-2s, 1099s, investment statements, and documentation for deductible expenses such as medical costs, charitable donations, and education expenses.
Maximize Retirement Contributions
Contributing to retirement accounts is one of the most effective ways to reduce taxable income. For 2024, the contribution limits for 401(k) plans are $23,000 (up from $22,500 for 2023), with an additional $7,500 allowed for those aged 50 and older. Traditional IRAs also offer tax-deductible contributions depending on your income and filing status, with a maximum contribution limit of $6,500 (or $7,500 if you’re 50 or older). Learn more at irs.gov
If you haven’t reached your maximum contribution limit, now is the time to increase your contributions. Not only will this reduce your taxable income, but it also allows you to invest in your financial future. Self-employed individuals can take advantage of SEP IRAs or solo 401(k) plans, which have higher contribution limits.
Take Advantage of Tax-Loss Harvesting
If you’ve had a challenging year in the stock market, tax-loss harvesting can help offset your gains and reduce your taxable income. This strategy involves selling underperforming investments to realize a loss, which can then be used to offset any capital gains. If your losses exceed your gains, you can use up to $3,000 to reduce your ordinary income and carry over any remaining losses to future years.
It’s essential to be mindful of the wash-sale rule, which prohibits repurchasing the same or substantially identical security within 30 days of the sale. A tax professional can help you navigate this process and ensure compliance.
Review Your Charitable Contributions
The end of the year is an excellent time to make charitable contributions, not only for the good of your community but also for potential tax benefits. Donations to qualified nonprofit organizations are deductible if you itemize your taxes. These contributions can be in the form of cash, goods, or even appreciated assets like stocks.
For donations of $250 or more, ensure you have a receipt or written acknowledgment from the organization. Additionally, consider donating appreciated assets to avoid paying capital gains taxes while still receiving a full deduction for the market value of the asset.
Optimize Deductions and Credits
Evaluate whether itemizing deductions or taking the standard deduction will benefit you more. For 2024, the standard deduction is $13,850 for single filers, $20,800 for heads of household, and $27,700 for married couples filing jointly. If your deductible expenses, such as mortgage interest, property taxes, medical costs, and charitable donations, exceed these amounts, itemizing may be advantageous.
If you expect your itemized deductions to fall just short of the standard deduction, consider bunching deductions—accelerating next year’s deductible expenses into the current year. For example, prepaying property taxes or making additional charitable contributions before December 31 can help you surpass the threshold.
Defer Income and Accelerate Expenses
If you’re a business owner or self-employed, deferring income to the following year and accelerating expenses into the current year can lower your taxable income. For instance, you might delay sending invoices until January or make year-end purchases for office supplies, equipment, or other deductible expenses.
Individuals who receive bonuses at work may also be able to request that the payment be delayed until the next calendar year to reduce this year’s taxable income. Consult with a tax professional to determine if these strategies align with your overall financial goals.
Review Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs)
If you have a Flexible Spending Account (FSA), remember that most plans require you to use the funds by the end of the year or risk losing them. Check with your employer to see if your plan allows for a grace period or rollover of unused funds. Spend remaining balances on eligible expenses, such as medical treatments, prescriptions, or health-related items.
Health Savings Accounts (HSAs) have a different set of rules, allowing you to roll over unused funds indefinitely. Contributing to an HSA before year-end can reduce your taxable income while helping you save for future healthcare expenses. For 2024, the contribution limits are $3,850 for individuals and $7,750 for families, with an additional $1,000 catch-up contribution for those 55 or older.
Plan for Tax Law Changes and Updates
Tax laws frequently change, and staying informed is crucial for effective year-end planning. For 2024, review any new legislation that may affect your tax situation, such as changes to deductions, credits, or income thresholds. For example, tax brackets are adjusted annually for inflation, which could impact your marginal tax rate.
Consulting with a tax professional ensures you’re up-to-date on these changes and taking full advantage of any new opportunities to reduce your tax liability.
Schedule a Tax Planning Consultation
Year-end tax planning is not just about minimizing your current tax liability; it’s about setting yourself up for long-term financial success. Meeting with a tax professional before the end of the year allows you to review your financial situation, explore strategies, and address any concerns.
Basta + Croop specializes in comprehensive tax planning for individuals and businesses in Charlotte, NC, and surrounding areas. Our experienced team will help you identify opportunities to save, ensure compliance with tax laws, and provide peace of mind as you head into the new year.
Proactive Approach to Planning
Taking a proactive approach to year-end tax planning can result in significant savings and a smoother tax filing process. From maximizing retirement contributions to leveraging tax-loss harvesting, these strategies allow you to make the most of the remaining days of the year. By organizing your financial documents, reviewing deductions, and consulting with a tax professional, you can ensure that you’re prepared for the upcoming tax season.
Basta + Croop is here to support you every step of the way. Whether you need assistance with tax planning, filing, or understanding how new tax laws impact your situation, our team is ready to help.
Take control of your taxes before the year ends!
Call Basta + Croop at (704) 270-5966 or visit our website at bastacroop.com to schedule a consultation.
Let us help you navigate the complexities of year-end tax planning and set you on the path to financial success in the new year.