Get Ahead of Tax Season: Your Essential End-of-Year Checklist Awaits!
As you sip on that cozy egg nog and bask by the warm glow of the fireplace, don’t let the tax season sneak up on you! It’s that time of year again when we all need to get our financial ducks in a row. The end of the year isn’t just about holiday cheer; it’s also the perfect moment to take stock of your tax situation and gear up for your 2024 tax return. If you anticipate any significant changes in your finances next year, now is the time to prep!
With a little strategic planning, you can reduce your tax burden and possibly land a bigger refund! But here’s the catch: some of these strategies need to be in place before the clock strikes midnight on December 31, 2024.
Read more: Important Tax Change Alert for Venmo, Cash App, or PayPal Users!
Now is the time to roll up your sleeves and dive into your tax prep. A bit of effort now could lead to substantial benefits come tax season. Check out these end-of-year tax tips to set yourself up for success!
1. Reassess Your Tax Withholding
The U.S. runs on a “pay as you go” tax system, which is why your paycheck has those withholdings. If you’re an employee, your employer uses your W-4 form to calculate how much to withhold, while freelancers must pay estimated taxes quarterly. Not paying enough can lead to penalties, so it’s crucial to double-check your withholding now!
Use the Tax Withholding Estimator from the IRS to gauge your current situation and make adjustments. Remember, you can submit an updated W-4 form to your employer anytime, and they must implement your changes by the next payroll period.
2. Offsetting Gains with Losses
2024 has been a rollercoaster for the stock market, with the S&P 500 soaring 30%. But if you’ve faced losses, don’t fret! You can engage in “tax loss harvesting” to offset your capital gains. Sell off those underperforming stocks to balance out your profits. For instance, if you made a $25,000 profit selling a property but suffered losses on a stock, you can offset those gains, effectively lowering your tax burden.
3. Max Out Your Retirement Contributions
Retirement accounts like 401(k)s and IRAs are goldmines for tax deductions. The 2024 contribution limit for 401(k)s is $23,000, excluding employer contributions. Imagine reducing your tax bill by nearly $5,000 just by saving for your future! Ramp up your contributions during the last pay period of the year to maximize those deductions.
4. Make Your Home Energy Efficient
Thanks to the Inflation Reduction Act of 2022, boosting your home’s energy efficiency can be rewarding. Installing solar panels, geothermal heat pumps, or battery storage could earn you a 30% tax credit if completed before January 1, 2025. Tax credits are more impactful than deductions, as they directly reduce your tax bill.
5. Delay Bonuses or Payments
If you have the opportunity, consider deferring your end-of-year bonus to January. This simple move can lower your taxable income for the current year, giving you a sweet tax break! Freelancers can also postpone invoicing to delay income recognition until the following year.
6. Charitable Contributions
If you love giving back and itemize your deductions, make sure you contribute to your favorite causes before year-end. Most taxpayers can deduct charitable donations up to 50% of their taxable income. Check the IRS’ tax-exempt organization database to ensure your donation qualifies.
7. Required Minimum Distributions
If you’re 73 or older, you must start taking distributions from your retirement accounts, thanks to the SECURE 2.0 Act. Failing to withdraw the required minimum could lead to hefty penalties, so verify your RMD and make those withdrawals to avoid fines.
8. Consolidate Medical Expenses
Medical expenses can be a significant deduction, but only expenses exceeding 7.5% of your AGI qualify. Consider grouping major medical expenses into one year to maximize deductions. If you’re nearing that threshold, schedule those visits and procedures before the year ends!
9. Plan Your Business Expenses
For the self-employed and freelancers, don’t overlook your business expenses! Prepaying for next year’s costs before year-end can lower your tax bill. Just ensure that you’re following the right accounting method—cash or accrual—for all your deductions.
Remember, everyone’s tax situation is unique! While these tips can help, it’s always wise to consult with a tax professional before making major financial decisions.
Ready for more tax insights? Check out the latest on 2025 tax bracket changes and standard deductions!
