Navigating taxes can feel like walking a tightrope—one misstep and you could be paying more than you need to. But here’s the good news: there’s still time to reduce your 2024 tax bill. Whether you’re an entrepreneur, small business owner, or financial advisor, being proactive now can lead to significant savings later.
This guide dives into six actionable strategies to help you optimize your taxes before the year’s end. From maximizing retirement savings to timing deductions and charitable contributions, these tips will keep more money in your pocket and your business flourishing.
1. Bunching Itemized Deductions
Are you close to the threshold for itemized deductions on your tax return? If so, “bunching” could make a big difference. Bunching involves consolidating deductions like medical expenses, mortgage interest, or state and local taxes into a single tax year to exceed the standard deduction.
How it works:
- Instead of spreading expenses across two years (and falling short of the deduction limit both times), pay items early or delay them strategically.
- For example, prepay medical bills or state taxes due in early 2025 before December 31, 2024.
While this approach requires some planning, it’s an effective way to capitalize on deductions that would otherwise go unused.
2. Making Charitable Contributions
Generosity not only feels good but can also lead to financial benefits. Donating to qualified charitable organizations is a win-win for both the recipients and your tax bill.
Key tips for maximizing your deduction:
- Cash Donations: Contributions made in cash are deductible up to 60% of your adjusted gross income (AGI).
- Non-Cash Contributions: Donations of items like clothes or household goods must be in “good condition,” and you’ll need an itemized receipt.
- Donor-Advised Funds. If you’re planning to give substantially over the years, consider setting up a donor-advised fund. Funding multiple years of charitable giving upfront lets you reap an immediate tax deduction while you spread out actual contributions.
Remember, to claim these deductions, you’ll need to itemize rather than opt for the standard deduction.
3. Leveraging Maximum Contribution Limits
Your retirement savings accounts offer a golden opportunity to cut taxes and secure your financial future. If you haven’t maxed out your contributions yet, now is the time.
Limits to know for 2024:
- The 401(k) contribution limit is $23,000 if you’re under 50 and $30,500 if you’re 50 or older.
- For Traditional IRAs and Roth IRAs, the contribution cap is $6,500 (or $7,500 for those 50+).
Ensure contributions are made before the respective deadlines—especially for IRAs, which give you until April 15, 2025, for the 2024 tax year.
Don’t forget employer-sponsored matching. Skipping out on an employer match equals leaving free money on the table!
4. Harvesting Losses
Got investments in the red? Tax-loss harvesting can help turn those losses into opportunities. Essentially, you sell underperforming assets to offset taxable gains from other investments (or reduce ordinary income by up to $3,000 annually).
How to get it right:
- Offset Gains: Pair losses against capital gains to minimize overall tax liability. If losses exceed gains, they can roll over to future years.
- Wash-Sale Rule: Be mindful of IRS wash-sale rules, which prohibit repurchasing the same or “substantially identical” security within 30 days.
This clever move can reduce what you owe while keeping your portfolio optimized for growth.
5. Converting an IRA to a Roth IRA
Switching from a Traditional IRA to a Roth IRA can be a game-changer, particularly if your income has dipped this year or you anticipate higher income later. While the conversion is taxable, it allows you to pay taxes now and enjoy tax-free growth and withdrawals in the future.
Key considerations:
- A lower-income year may make the tax hit more manageable.
- Be sure the upfront tax liability doesn’t outweigh the long-term tax benefits.
Work with a financial advisor to calculate exactly how much to convert and avoid unexpected penalties.
If executed strategically, a Roth IRA conversion can help shield your retirement savings from future tax increases.
6. Timing Your Income and Expenses
Strategic timing can have a significant effect on your tax bill. Adjust the receipt of income or payment of expenses in a manner that reduces your taxable income for this year or next.
Examples of income and expense timing:
- Accelerate Expenses: Pay deductible business expenses, like rent or office supplies, in December instead of January.
- Delay Income: Postpone billing or defer bonuses into January 2025 when possible.
This approach helps entrepreneurs and small business owners manage cash flow while optimizing their tax brackets across multiple years.
Don’t Miss the Opportunity to Save
Taxes are never just about paying what you owe—they’re about using every available opportunity to save. By implementing even a few of these proven strategies, you can enjoy substantial savings and set your business up for long-term success.
At SD Mayer & Associates, we understand that tax planning can seem overwhelming. That’s why our team is here to provide personalized advice to help you unlock hidden opportunities and maximize your returns.
Want us to crunch the numbers for you? Reach out today, and we’ll guide you through the process step by step.
Start Saving Now
With a little preparation, you can turn tax season from stressful into successful. Contact SD Mayer’s tax experts now to start your 2024 tax trimming strategies!
DISCLAIMER:
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The services of an appropriate professional should be sought regarding your individual situation.
