5 Year End Tax Savings Strategies

As the year draws to a close, it’s a great time to review your financial situation and take advantage of tax-saving opportunities. Here are five strategies to consider to help reduce your tax liability and maximize your savings.

1. Maximize Retirement Contributions
One of the most effective ways to save on taxes is by contributing to retirement accounts. Contributions to traditional IRAs (Up to MAGI Limits) and 401(k) plans are tax-deductible, which can lower your taxable income. For 2024, the contribution limit for a 401(k) is $23,000, with an additional $7,500 catch-up contribution if you’re 50 or older. For IRAs, the limit is $7,000, with a $1,000 catch-up contribution if you’re over age 50. If you know Brian and I, you know we love the Roth. However, if your goal is to solely limit your taxable income in calendar year 2024 this is one way of doing it.

2. Harvest Tax Losses
Tax-loss harvesting involves selling investments that have lost value to offset gains from other investments. This strategy can help reduce your taxable income. You can use losses to offset up to $3,000 of ordinary income per year, and any excess losses can be carried forward to future years. Be mindful of the “wash sale” rule, which disallows the deduction if you buy a substantially identical security within 30 days before or after the sale.

3. Charitable Contributions
Donating to charity is a generous way to reduce your tax bill. Contributions to qualified charitable organizations are tax-deductible if you itemize your deductions. Consider donating appreciated assets, such as stocks, which can provide a double benefit: you avoid paying capital gains tax on the appreciation, and you get a deduction for the full market value of the asset (Up to MAGI Limits). Remember to keep receipts and documentation for all charitable contributions. Other ways to give to charity to lower your tax bill is through Qualified Charitable Distributions (which may be appropriate for those of you subject to Required Minimum Distributions) and Donor Advised Funds. If you’re interested in learning more about how a Donor Advised Fund might fit into your legacy planning, please reach out to Brian or myself. Donor Advised Funds are quite possibly the most fulfilling way to give to charity if you’re inclined to do so.

4. Contribute to Health Savings Accounts (HSAs)
Health Savings Accounts (HSAs) offer a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. For 2024, the contribution limit is $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution for those 55 and older. HSAs can be a powerful tool for saving on healthcare costs and reducing your taxable income. To qualify for an HSA, you must have a high deductible health care plan defined by the IRS as having a deductible of at least $1,600 for individual coverage or $3,200 for family coverage. Annual out of pocket expense maximums cannot exceed $8,050 for single coverage or $16,100 for family coverage.

5. Review Your Withholding and Estimated Taxes
Ensure that you have paid enough taxes throughout the year to avoid penalties. If you have underpaid, consider adjusting your withholding or making an estimated tax payment before the year ends. This is particularly important for self-employed individuals or those with significant non-wage income. Use the IRS withholding calculator or consult with your CPA to check if you’re on track.

Conslustion
Taking advantage of these year-end tax strategies can help you save money and reduce your tax liability. By planning ahead and being proactive, you can make the most of your financial situation and enter the new year with confidence.

If you have any specific questions or would like CPA recommendations, feel free to contact Brian or myself.

Sources:
https://www.forbes.com/sites/davidrae/2023/12/07/what-are-the-new-2024-health-savings-accounts-hsa-limits/

https://www.kiplinger.com/tax/higher-ira-and-401k-contribution-limits-next-year

https://www.kiplinger.com/taxes/capital-losses-rules-to-know-for-tax-loss-harvesting

Wells Fargo Advisors Financial Network is not a legal or tax advisor.  Any discussion of taxes represents general information and is not intended to be, nor should it be construed to be, legal or tax advice.  Tax laws or regulations are subject to change at any time and can have a substantial impact on an actual client situation.