Holiday Tax Planning: Strategies to Boost Your Year-End Savings
The holidays are rolling in fast, and while most of us are getting caught up in the festive cheer, Uncle Sam isn’t taking a holiday break. The year-end rush can be hectic, but it’s also the perfect time to get your financial house in order. By making a few strategic moves, you can save yourself a good chunk of change come tax season.
So, let’s take a look at some tax planning strategies you can put into action before the ball drops on New Year’s Eve:
1. Max Out Your Retirement Contributions
Do you have a retirement plan like an IRA or 401(k)? Now’s the time to max those contributions out. For 2024, the contribution limit for a 401(k) is $23,000 (or $30,500 if you’re 50+), and for an IRA, it’s $7,000 (or $8,000 if you’re 50+). Every dollar you put into these accounts lowers your taxable income, which means more money stays in your pocket.
Pro tip: Are you self-employed or own a business? Consider setting up a Solo 401(k) or SEP IRA before year-end for some serious tax savings!
2. Take Advantage of Charitable Contributions
It is the season of giving, and the IRS is all about rewarding generosity. Donating to qualified charities can give you a nice tax deduction. If you itemize your deductions for the 2024 tax year, you can write off cash donations up to 60% of your adjusted gross income (AGI).
Pro tip: Clean out your closet and donate those gently used items, too. Keep a detailed list and get a receipt—every bit counts.
3. Make Year-End Business Purchases
If you’re a business owner, now’s the time to stock up on supplies, equipment, or software. Thanks to Section 179, you can deduct the full cost of qualifying purchases, even if you finance them. This is a great way to reduce your taxable income while investing back into your business.
Pro tip: Need a new laptop, or that software upgrade? Get it done before December 31st!
4. Defer Income (If It Makes Sense)
Got a fat check coming your way? If you’re self-employed or an independent contractor, consider deferring your income until January if it won’t hurt your cash flow. By pushing income to next year, you can lower your taxable income for 2024, reducing your tax liability.
5. Prepay State and Local Taxes
If you itemize your deductions, consider prepaying your state and local taxes (like property taxes) before year-end. The IRS cap on state and local tax deductions is $10,000, but if you haven’t hit that limit, paying early could save you some serious cash.
6. Harvest Capital Losses
Do you have some investments that haven’t been performing well? Now’s the time to sell them and harvest those capital losses. This strategy allows you to offset your gains, reducing the amount of tax you owe on capital gains. If your losses exceed your gains, you can deduct up to $3,000 ($1,500 if married filing separately) against your other income.
Pro tip: Don’t buy back the same security within 30 days, or you’ll trigger the wash sale rule and miss out on the deduction.
7. Review Your Tax Withholding and Estimated Payments
If you’ve had a profitable year, the last thing you want is to get hit with a hefty tax bill in April. Now’s the time to adjust your tax withholding or make an estimated tax payment. It’s a small move that could save you big headaches (and penalties) down the line.
8. Contribute to a Health Savings Account (HSA)
Got a high-deductible health insurance plan? An HSA is a triple-threat tax benefit: contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses aren’t taxed. For 2024, the contribution limits are $4,150 for individuals and $8,300 for families, with an extra $1,000 if you’re over 55.
9. Consult with a Tax Professional
Tax laws are constantly changing, and what worked last year might not be the best move this year. Don’t leave money on the table by trying to DIY your taxes, especially if you’ve had a big life change, like starting a business, getting married, or buying property.
This is where having a tax pro like me in your corner pays off—literally. We’ll help you find deductions and credits you might’ve missed and ensure you’re taking full advantage of the tax code.
With just a few smart moves, you can set yourself up for some serious tax savings before 2024 closes out. Don’t wait until the last minute—start planning now so you can ring in the New Year with peace of mind (and a fatter wallet).
Happy holidays, and here’s to keeping more money where it belongs—in your bank account!
Contact me now if you need to speak to a tax pro before the 2025 tax season begins—in January!
Frequently Asked Questions
1: Can I still get a tax deduction if I donate to charity but don’t itemize my deductions?
Unfortunately, no. Since the IRS changed the tax laws a few years back, you can only claim a deduction for charitable donations if you itemize your deductions. The standard deduction is pretty generous, so not everyone needs to itemize. However, if you have significant deductions beyond the standard amount—like mortgage interest, medical expenses, and charitable contributions—it might make sense to itemize. A quick review with a tax professional can help you figure out the best approach for your situation.
2: If I max out my retirement contributions now, will it reduce my tax bill for this year?
Absolutely! Contributions to tax-deferred retirement accounts like a 401(k) or a traditional IRA lower your taxable income for the year, which means less money going to Uncle Sam. Plus, they grow tax-free until you withdraw them in retirement. However, keep in mind that the deadline for IRA contributions is April 15th of the following year, but 401(k) contributions typically need to be made by December 31st. The sooner you contribute, the sooner you’ll see the tax savings.
3: How do I know if I should defer income or accelerate expenses before the year ends?
This is a classic tax strategy that can be beneficial, but it depends on your specific financial situation. If you anticipate being in a lower tax bracket next year (say, due to retirement or a change in income), deferring income can be a smart move. On the other hand, accelerating expenses like business purchases before December 31st can reduce your taxable income this year. However, these strategies can be a bit tricky, especially if you’re self-employed. Consulting with a tax professional is key to making sure you’re making the right moves for your tax bracket and financial goals.
