Smart Money Moves: Essential 2024 Year-End Tax Planning Strategies You Can’t Ignore
The clock is ticking on your chance to reduce your 2024 tax burden, but there’s still time to make strategic moves that could save you thousands. According to Fidelity, with the recent inflation adjustments increasing standard deductions and adjusting tax brackets, taking action now is more crucial than ever. Financial experts are highlighting several key opportunities, from maximizing tax-advantaged accounts to harvesting investment losses, that could significantly impact your April 15th outcome.
These steps can help make the new year brighter, at least from a tax perspective, according to “The Epoch Times.”
Don’t buy a tax liability. In December, many mutual funds pay out dividends and capital gains that have built up during the year. According to Investopedia, if you own shares on what’s known as the ex-dividend date in a taxable account, you’ll have to pay taxes on the payouts, even if you reinvest the money. If you’re planning to invest in a mutual fund, call the fund company or check its website to get the date and estimated amount of year-end distributions so you can time your purchase accordingly. The estimates often are reported as a percentage of a fund’s current share price.
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Harvest losses. Because it has been a good year for the stock market, you could be sitting on a lot of winners in your taxable accounts. Goldman Sachs explains that tax-loss harvesting is a strategy designed to potentially reduce your overall tax bill so you can keep more of what you earn from your investments. If you have some losers in your portfolio, consider selling them so you can use the losses to offset some of your gains. These losses also can be used to lower taxes on mutual fund capital gains distributions. You can implement this strategy at any time, but many investors harvest losses near year-end, because they can more accurately estimate their capital gains for the year. According to Investopedia, unused losses can be carried forward indefinitely until the amount is exhausted.
Use funds in flexible spending accounts. A flexible spending account allows you to use tax-free money to cover health insurance deductibles, copayments and other out-of-pocket costs. According to FSA Store, you generally have to use the money by December 31 to avoid forfeiting the unused balance.
Check your withholding. There still is time to take steps to avoid a big tax bill and possibly an underpayment penalty when you file your 2024 tax return. Use the IRS Tax Withholding Estimator to determine whether you should file a new Form W-4 with your employer and increase the amount of taxes withheld from your paycheck before the end of the year. If it looks as though you’re going to owe money when you file your next tax return, the IRS tool will tell you how much extra withholding you should put down on line 4(c) of Form W-4 to catch you up on withholding for the year. Early next year, complete another W-4 for withholding in 2025.
–The Epoch Times
