Mark O. Neumeister
Nov 14, 2024
Year-End Tax Planning
I know, I know, you just finished your 2023 tax return last month. But it’s not too early to consider saving taxes on the next one! This fall is a great time to start thinking about year-end tax planning. Here are three ways for you to consider to lower your taxes before the year ends.
1. Contribute to Retirement Accounts
Contributing to retirement accounts such as a 401(k) or IRA provides an effective way to reduce your tax. Contributions to these accounts are often tax-deductible. For 2024, the contribution limit for a 401(k) is $23,000, and the limit for an IRA is $7,000. Each type of plan allows “catch-up” contributions if you are 50 years old or older, of $7,500 for a 401(k) and $1,000 for an IRA.
Maximizing these contributions not only allows you to save for the future but also reduces your current tax. For example, if you’re in the 22% tax bracket and contribute the maximum $23,000 to your 401(k), you could potentially save $5,060 in taxes.
New for 2025: Not only will the above amounts likely be increased for inflation, but a new “super catch-up” contribution will be allowed for those ages 60—63 contributing to a 401(k) plan. The super catch-up amount for 2025 will be $11,250.
2. Take Advantage of Deductions and Credits
Taking advantage of available deductions and credits is another way to reduce your taxes. The most popular tax deductions include charitable donations, medical expenses, and mortgage interest.
Tax credits, such as the American Opportunity Credit for education expenses and the Child Tax Credit, can also significantly reduce your tax bill.
Keeping detailed records and receipts of all deductible expenses might be a bit of a chore, but it’s a proven way to maximize these tax benefits. For instance, if you donate to a qualified charity, ask for a receipt or acknowledgment letter. Compared to taking the standard deduction, itemizing your deductions can lead to greater tax savings.
3. Review Your Tax Withholdings
Checking on your tax withholdings is a commonly missed opportunity. However, if you’ve had significant changes in your income or personal circumstances, adjusting your withholdings can help you avoid underpayment penalties or a large tax bill. Check out the withholding calculator the IRS provides on its website to help you determine the correct amount to withhold from your paycheck.
This proactive step can help balance your tax payments and refunds, making tax season less stressful.
With a little bit of effort, year-end tax planning can be an opportunity to reduce your tax liability and maximize your refund. By maximizing retirement contributions, taking advantage of deductions and credits, and reviewing your withholdings, you can make the most of the remaining months of the year. Need some help implementing these strategies? Please visit with your favorite CPA for help. Happy tax planning!