There is still some time to make some end of year moves to reduce your taxes, but the window is closing! Depending on your situation, below are some ideas for last minute tax reduction moves. Of course, since each person’s situation is different, you will want to individually consult with your tax pro or financial advisor to see what is right for you; the below should be seen simply as ideas to talk to your advisor about, and not as specific tax advice.
1. Saving for retirement. This comes in a couple of different forms, and only one of them has a hard deadline of 12/31:
a. Add extra to your 401k – This will depend on whether your company is processing any more payrolls this year. If your company still has one more payroll for the year, you may able to adjust your 401k and get some extra reduction of your taxable income. HINT: you could make the adjustment for the end of the year and just keep it in place for the new year – extra saving for retirement, and making sure you max out the tax benefits, too. Most payroll systems won’t allow you to over contribute, but you should check with HR just to be sure.
b. IRA – You actually have until Tax Day to make this contribution, but this is a good time to plan and budget for it, so you are ready to write that check. Of course, you could just go ahead and make that contribution if you are eligible and have the funds available.
c. HSA – If you have a high deductible health plan that qualifies for a Health Savings Account, remember that you can contribute up to $4150 in 2024 for a single person, or double that ($8300) for a family plan. Such contributions reduce your taxable income, and if you can do this through payroll (that final payroll of the year?), even better – not only are such contributions exempt from Federal Income Tax, they are also exempt from payroll taxes if done through your payroll. You can also contribute directly (as in, not through payroll), and still save the income taxes on those contributions. HSA’s are a great way to save for health care expenses, and unlike the Flexible Spending Account you may also have at work, HSA contributions are not “use it or lose it". Thus, if you contribute $8300 this year, but only need to use $4000, that remaining $4000 stays in your account for future use, and as long as you use it for qualified medical expenses, it remains tax free. And, it can build up over time, and supplement retirement savings in the future. This is another one you have until Tax Day on, but look at your budget NOW.
d. If you are self employed or are an owner/partial owner of a small company, you may also be able to contribute to a SEP, a SIMPLE, or a solo 401k plan, further increasing your savings for the future, and also further reducing your taxable income. Note that these contributions may be separate from other retirement plan contributions, so when you stack these strategies, you can really make a dent in your taxable income (and therefore your taxes owed), as well as aggressively save for the future.
2. An additional year end move is called tax loss harvesting. This simply means using some of your investments that have lost money this year to offset those that you had a gain on. In a diversified investment portfolio, you probably have winners and losers in terms of individual investments in any given year. Sell a loser to offset the income from the winners. In both cases, you have to actually sell the investment in question – you can’t simply hold an investment with a loss and take the tax benefits.
3. And my favorite year-end (and all year) tax move is generosity! Sure, if you don’t itemize, you don’t necessarily get this benefit, but give anyway! Find a registered non-profit (501 c-3) that is doing good work that you can believe in – that might be a school, a house of worship, a food pantry, or any number of things – there are lots of organizations doing good things just about everywhere. The idea is to transform this from simply a tax deduction to something you can feel good about, regardless of the tax deduction. Besides, the more emotionally and spiritually invested into a cause you are, the more likely you are to give at levels that make a difference on your taxes anyway. There are some ways around the Standard Deduction, but those are for a different time.
Any of the above ideas can usually be done with just a few days left in the year, with the possible exception of the 401k adjustment, which will depend on your employer’s payroll and 401k policies. If any of these sound interesting, get with your tax pro or financial advisor asap if you need more information, or need guidance specific to your situation.