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Tax season is still a month away. Check out our year-end tax checklist to prepare

You might be sipping eggnog and curled up by the fire right now, but before you know it, tax time will be here. The end of the year is a great time to review your taxes and prepare to file your 2024 return, especially if you anticipate significant changes in your financial situation in 2025.

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Science and Technology Information Network

Some tax strategies can reduce your tax burden and help you get a bigger refund, but you’ll need to act quickly as some steps need to be completed by December 31, 2024.

Read more: If you make money through Venmo, Cash App or Paypal this year, be aware of this tax change

It’s worth taking the time to review your tax situation now, as a little effort now could pay off big time later. Read on to find year-end tax tips to prepare for the upcoming tax season.

1. Double check your pay stubs for tax withholdings

The United States has a pay-as-you-go income tax model, which is why your employer deducts money from your paycheck and freelancers must pay estimated taxes each quarter. Failure to pay enough tax during the year may result in penalties at tax time.

Your employer uses your W-4 tax return to determine the amount to withhold from your paycheck, which includes your filing status and estimated tax deduction. The end of the year is a great time Check your W-4 and current taxes withheld to decide whether to change it.

The IRS’s Withholding Estimator tool allows you to estimate your current withholding and projected refund to adjust your Form W-4. You can submit an updated Form W-4 to your company at any time, and your employer must make the changes before the start of your first pay period (that is, 30 days or more after you file your W-4).

2. Sell all losing stocks to offset your capital gains

2024 is a big year for stocks — the S&P 500 is up 30% — but there are still many stocks losing money this year. One of the highlights of potential inventory losses is the opportunity to practice “tax loss harvesting.”

This tax strategy works by realizing losses or selling stocks and assets that have lost value to offset other capital gains you may have earned. For example, if you made a $25,000 profit on real estate sales in 2024 but lost heavily investing in a distressed stock (like Intel), you could sell your securities and subtract that from your capital gains Financial losses on that investment. If you have a $25,000 inventory loss, you would offset the $25,000 earned from the property sale to eliminate that tax liability.

Capital gains include any income you make from the sale of an asset, such as stocks, real estate, cars, furniture, or any other tangible property, but you must actually sell the asset to realize the loss and offset the gain.

3. Maximize retirement account contributions

Retirement funds such as 401(k) Account IRAs offer one of the most effective tax breaks because you can reduce your tax bill while accumulating funds for the future. If you can afford it, maximize your possible contributions to any retirement account before the end of the year.

The deduction for 401(k) contributions is capped at $23,000 for 2024 taxes, which does not mean no Calculate employer contributions. Workers in the 24% tax bracket could reduce their tax bill by nearly $5,000 simply by saving money for the future. Increase the regular 401(k) contribution percentage for the last pay period in 2024 to take advantage of potential retirement deductions.

If you are over 50, you can contribute to your 401(k) in 2024 for a total annual “catch-up” contribution of $7,500 (or a total of $30,000), if Your 401(k) plan allows it. You don’t even need to be “in arrears” on your 401(k) contributions to get an additional rollover on your account.

For an IRA, the maximum tax-deductible contribution in 2024 is $7,000, or $8,000 if you are over 50.

4. Make your home more energy efficient

Thanks to the Inflation Reduction Act of 2022, we’re introducing significant incentives to make your home “greener” in 2024. amount. The Residential Clean Energy Credit, which provides a rebate for installing solar panels, geothermal heat pumps, fuel cells and battery storage, remains at 30% for this tax year.

Tax credits have a greater impact on your tax bill than deductions. Deductions lower the level of your taxable income, and tax credits directly reduce the amount of tax you owe the IRS.

If a solar system, wind turbine or geothermal heat pump is installed before January 1, 2025, 30% of the cost is now rebateable. If you make the average improvements to your home in 2024, you will reduce your taxes by $3,467.

Tax credits for energy improvements are not limited to alternative energy sources. Simply installing a new, qualified ENERGY STAR-certified furnace and boiler can also qualify for a tax credit, albeit less than for alternative energy sources. Be sure to check the manufacturer’s tax certification statement, as not all ENERGY STAR certified products qualify.

5. Can you defer your year-end bonus or payment?

It’s not always easy to defer employer payments, but if you receive a year-end bonus and want to minimize your taxable income this year, consider asking your company to pay you in January.

Likewise, if you’re a freelancer or contractor and want to reduce your taxable income in 2024, consider deferring your invoices until December so you’re paid by January. You’re just deferring income tax on that money until your taxes are due in 2025, so you’ll need to strategize whether this year or next is a better time to earn that money.

6. If you want more tax relief, donate to charity now

If you itemize your tax deductions and want to make financial contributions to causes and groups you support, do so before the end of the year to best reduce your 2024 taxable income. Deduct charitable contributions Up to 50% of taxable income.

Before donating, make sure your donation is tax-deductible by searching the IRS’s database of tax-exempt organizations. All valid charities and non-profit organizations will also have a tax identification number indicating that they are tax exempt.

7. Check required minimum distributions from IRA and 401(k) accounts

U.S. tax law requires Americans to begin taking distributions from personal or job-provided retirement accounts when they reach a certain age. Beginning in 2023, the SECURE 2.0 Act increases the age from 72 to 73 for those who turn 72 after December 31, 2022.

These distributions are mandatory for 401(k) plans, traditional IRAs, profit-sharing plans, and pensions. they are no Required while the Roth IRA owner is alive.

Required minimum distributions (RMDs) are calculated by adding all the funds in your retirement accounts and dividing by the IRS’s life expectancy factor. The SEC provides a simple calculator with the latest IRS life expectancy tables.

The administrator of your retirement plan must comply with tax laws on RMDs, and it is your responsibility to make sure you get the correct amount. If you do not meet the required RMD amount, you will face the most severe penalties from the IRS. In the past, the excise tax on failed RMDs was 50%, but the SECURE 2.0 Act reduces the penalty to 25% and further to 10% if the RMD is corrected within two years.

However, if you are required to withdraw $20,000 in 2024 but only receive $10,000, you could face a $2,500 penalty. It’s definitely worth double-checking your 2024 RMDs and withdrawing more funds if needed.

8. Consolidate your medical expenses into one year

Medical expenses can be a big deduction for many taxpayers, but the IRS only allows you to deduct expenses that exceed 7.5% of your AGI. For example, if your AGI is $50,000 and you spend $5,000 on medical expenses, you can deduct $1,250 from your taxable income ($5,000 – ($50,000 x 7.5%)).

Therefore, it may be more advantageous to lump all major medical expenses into one year. These costs may include surgeries, preventive care, hospital visits, dental care, prescription drugs, eyeglasses, hearing aids, and mental health care (such as therapy), as well as transportation to and from providers.

If your medical expenses this year are close to 7.5% of AGI, consider making as many of your anticipated health-related purchases as possible before the end of December. Straighten your teeth, buy new glasses or schedule elective surgery before the end of 2024 and you’ll maximize your medical deduction.

Likewise, if you don’t meet the 7.5% AGI threshold for medical expenses in 2024, postpone any non-emergency health-related purchases until January, when they may be more beneficial for next year’s income taxes.

9. Develop a business spending strategy

If you are self-employed or freelance, Deduct your business expenses Can save you a lot of money on taxes. Depending on how much you’ve already spent on professional work this year, you might consider prepaying next year’s expenses before the end of 2024 to reduce your tax burden.

For example, you could order and pay for supplies in December 2024 that will be used for several months in 2025, rather than purchasing supplies all at once on a monthly basis. On an incurred basis, taking forward next year’s business expenses is a time-tested way to reduce taxable income for the current year.

It’s important to note that everyone’s tax situation is different. These year-end tax tips may work for you, but there is no “one-size-fits-all” approach to tax preparation. Always consult a tax professional before making any major tax decisions.

For more information about the 2024 tax season, see How income brackets and the standard deduction have changed in 2025.



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