With the election behind us and the holiday season in full swing, 2024 year-end tax planning might not be your top priority. However, there is still time to take proactive steps to reduce your federal income tax liability for 2024. Here are five essential year-end tax planning strategies to consider:

Important: Many Tax Cuts and Jobs Act (TCJA) provisions that affect individuals — such as the doubled standard deduction and lower individual tax rates — are scheduled to expire at the end of 2025, absent congressional action. However, Republican control of the White House and Congress makes an extension or even an expansion of many TCJA provisions likely.

1. Timing Income and Expenses

Suppose you don’t expect to be in a higher tax bracket next year. In that case, the traditional tax reduction strategy is to defer taxable income into the next year and accelerate deductible expenses into the current year. For example, you could ask your employer to pay your bonus in January, and you can prepay deductible January expenses before year end.

This strategy will reduce your taxable income, which also positions you to make the most of tax breaks that phase out based on income. Examples include the IRA contribution deduction, child tax credits and education tax credits.

Deferring income can also help high-income individuals avoid or minimize the 3.8% net investment income tax (NIIT). The NIIT kicks in at the following modified adjusted gross income (MAGI) levels:

• $200,000 for single and head-of-household filers,
• $250,000 for married couples who file jointly, and
• $125,000 for married couples who file separately.

However, if you expect to be in a higher tax bracket in 2025, you might want to consider the reverse strategy. This might be the case if you switch to a higher-paying job, start a side business, or plan to sell your business or significant investments for a gain in 2025. In these situations, it might make more sense to accelerate taxable income into the current year and defer deductible expenses in the next tax year. Maximizing tax income for 2024 will allow more income to be taxed at your current year’s lower rate. And deferring expenses will make the deductions more valuable, because deductions save more tax when you’re subject to a higher tax rate.

2. Bunching Itemized Deductions

The TCJA nearly doubled the standard deduction, causing fewer people to itemize deductions. For 2024, the inflation-adjusted standard deductions are:

• $14,600 for single filers and married couples who file separately,
• $21,900 for heads of households, and
• $29,200 for married couples who file jointly.

If you’re near the cutoff for itemizing deductions for 2024, you can “bunch” certain expenses to qualify for itemized deductions. This refers to timing deductible expenses to exceed the standard deduction threshold in a specific tax year. Such expenses include:

• Medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI),
• Mortgage interest,
• Investment interest,
• State and local taxes,
• Casualty and theft losses from a federally declared disaster, and
• Charitable contributions.

For instance, before the end of the year, you could schedule elective medical or dental procedures with uninsured costs, prepay property taxes due next year, and make charitable contributions for both 2024 and 2025.

Important: Under the TCJA, itemized deductions for state and local taxes are limited to $10,000 annually. Absent congressional action, this limit is scheduled to expire after 2025. During the campaign, President-Elect Donald Trump proposed increasing or eliminating it.

3. Leveraging Charitable Giving

Regular donations of cash or personal property aren’t the only way charitable giving can help you trim your tax bill. There are other options to boost itemized deductions for charitable contributions. For example, consider donating appreciated assets you’ve held for at least one year. This allows you to avoid capital gains tax and, if applicable, the NIIT on the appreciation. Plus, you can deduct the fair market value of donated stocks and the cost basis of nonstock donations (subject to AGI limits).

A qualified charitable distribution (QCD) won’t count toward your charitable contribution deduction, but it’s still worth considering. After age 70½, you can make a QCD of up to $105,000 for 2024 from a retirement account with required minimum distributions (RMDs). The distribution is treated as an RMD from the account and is excluded from your taxable income. For 2024, you also can make a one-time QCD of up to $53,000 to a “split-interest” entity, meaning a charitable gift annuity or a charitable remainder trust. (Both QCD limits are adjusted annually for inflation.)

4. Converting Traditional IRAs to Roth IRAs

Despite a strong stock market in 2024, executing a Roth conversion is still advisable, especially if you expect continued appreciation in the future. The main downside is that you must pay income taxes now on the converted amount. A conversion can also result in a higher taxable income for the year of the conversion, which can affect tax breaks that phase out based on AGI or MAGI.

However, the long-term benefits often outweigh the tax costs. Roth IRAs don’t come with RMD obligations, and the funds appreciate tax-free. Qualified Roth IRA withdrawals are also federal-income-tax-free. A qualified Roth withdrawal is one taken after meeting two requirements:

1. You’ve had at least one Roth IRA open for over five years, and
2. You’ve reached age 59½, become disabled or died.

This can be particularly advantageous if you’ll be subject to higher tax rates in retirement — a development that surprises many retirees. You can also withdraw funds from a Roth account for the following purposes without incurring taxes or penalties:

• A first-time home purchase (subject to a $10,000 limit),
• Qualified birth or adoption expenses (subject to a $5,000 limit), and
• Qualified higher education expenses (with no limit).

Additionally, Roth IRAs can be a beneficial estate planning tool. Why? Because you’re not required to take RMDs, you can leave the account untouched during your lifetime and then pass on the accumulated balance to your heirs. When you die, your account beneficiary (or beneficiaries) must follow the same RMD rules that apply to inherited traditional IRAs.

5. Maximizing Retirement and Health Account Contributions

In general, it’s advisable to contribute as much as you can afford toward retirement accounts and health savings accounts (HSAs). HSAs allow people with high-deductible health plans to pay for their medical expenses with pretax dollars. The write-off for HSA contributions is an “above-the-line” deduction, so you can claim it even if you don’t itemize. In addition, the HSA contribution privilege isn’t tied to your income level. Unlike flexible spending accounts, undistributed HSA balances aren’t forfeited at year end. They can accumulate value, year after year. So, if you stay healthy and take minimal or no distributions, an HSA can function like a traditional IRA.

For 2024, the maximum contributions are:

• $23,000 to 401(k) plans ($30,500 for those age 50 or older),
• $7,000 to traditional IRAs ($8,000 for those age 50 or older),
• $4,150 to HSAs for individual coverage ($5,150 for those age 55 or older), and
• $8,300 to HSAs for family coverage ($9,300 for those age 55 or older).

Adding to these accounts reduces your taxable income for the current year and provides funds for later in life.

Important: The deadline for making 2024 contributions to 401(k)s is December 31, 2024. However, the deadline for making 2024 contributions to traditional IRAs and HSAs is April 15, 2025.

What’s Right for Your Situation?

During the 2024 election season, Republicans campaigned on promises of extending the individual tax breaks provided under the TCJA — and potentially cutting taxes even further. With the TCJA expiration date fast approaching, Congress is expected to begin deliberating on tax legislation in early 2025. However, the exact timing of when new tax laws could be introduced and enacted will depend on the legislative agenda set by congressional leaders and the Trump administration, as well as the complexities involved in negotiating and drafting comprehensive tax reforms.

We keep you updated on any law changes. Contact your tax advisor for more information on these and other federal (and state) tax planning moves that may apply to your current situation.