December is not too late to do last minute tax planning. In fact, it is the perfect time to review your taxes and look for some savings. At this point you should have a good idea of your wages, Social Security and pension income, dividends, interest and capital gains in order to estimate your 2024 taxes.
Tax Loss Harvesting
The first place to look is to see if you have losses on any of your table accounts. If you take these losses, they can be used to either offset taxable gains or you can take up to $3,000 in capital losses each year. Any additional losses can be carried forward to the following year. Just remember that if you have owned the security for less than 30 days, sell it and then repurchase “a substantially similar one” within 30 days, according to the IRS the loss is considered a wash sale and is not allowed.
Maximize Health Savings Accounts
If you have a high deductible healthcare plan you are eligible for a Health Savings Account (HSA). You can always maximize your contribution to your HSA. Earned income contributed to an HSA is not considered income on your taxes, therefore, you do not pay taxes on the contribution. Additionally, the earnings on the HSA are never taxed as long as the account is used to pay for or reimburse yourself for health care expenses. If you can pay your healthcare expenses out of pocket, keep your receipt and when you need additional money you can reimburse yourself for those pervious expenses with money that has grown tax-free. The contribution limits for 2024 are $4,150 for Individuals or $8,300 for Families. These limits also include any employer contributions, so if you are a family member and your employer contributed $1,000 to your HSA, your maximum contribution would be limited to $7,300.
Qualified Charitable Distributions (QCD)
If you are 73 or older and have not taken your entire Required Minimum Distribution (RMD) and you don’t feel you need the money you can make a donation directly from your IRA or Qualified Plan to a qualified charity. It must be distributed directly to the charity and not pass through your personal accounts to be considered a QCD. The benefit is that the distribution is not considered income to you, as a normal RMD would be, although you cannot include the donation in your deductions.
Fund an IRA
If you have additional resources, you can fund an Individual Retirement Account (IRA) even if you have contributed to an employer retirement plan. There are certain income limits that apply. If you are under Modified Adjusted Gross Income (MAGI) levels, $145,000 for single filers and $230,000 for married filing joint, think about funding IRAs. The maximum contribution amounts for 2024 are the lesser of earned income or $7,000 and if you are over the age of 50, you have an additional catchup amount of $1,000 for a total of $8,000. This contributed amount is deductible from earned income.
Fund Roth IRAs
If you are under Modified Adjusted Gross Income (MAGI) levels, $145,000 for single filers and $230,000 for married couples filing jointly, think about funding Roth IRAs. The maximum contribution amounts for 2024 are the same for IRAs, the lesser of earned income or $7,000. If you are over the age of 50, you have an additional catchup amount of $1,000 for a total of $8,000. Although this does not reduce your taxable income it does help balance your before and after-tax savings for retirement. And most importantly, although the contributions are taxable the contributions grow tax-free, and the withdrawals are tax free.
Always remember to check with your accountant and/or your financial planner.
