6 Midyear Tax Moves to Consider Now: Optimize Your 2024 Tax Strategy This Summer

As summer unfolds, it’s an opportune time to get ahead on your 2024 tax strategy. While you might still be savoring the relief of having filed your 2023 taxes, proactive planning can help you reduce your tax burden for the next year. Here are six tax-planning strategies to consider implementing now to ease the process come next April.

6 Midyear Tax Moves to Consider Now: Optimize Your 2024 Tax Strategy This Summer

1. Examine Your W-4 Withholdings

Most people fill out their W-4 form when they start a new job and forget about it. However, it’s crucial to revisit this document periodically, especially if your circumstances have changed.

Reasons to Update Your W-4:

  • Added a Dependent: If you’ve recently added a dependent, adjust your withholdings to benefit from the Child Tax Credit (CTC) or the Credit for Other Dependents. The CTC offers a dollar-for-dollar reduction of your tax bill up to $2,000 per qualifying child under 17. For other dependents, you might qualify for a nonrefundable credit of up to $500.
  • Additional Work: Holding multiple jobs or earning freelance income can complicate your tax withholdings. You might need to adjust your W-4 for one job to cover the tax liability from other income sources. This is especially critical if your additional income doesn’t have taxes automatically withheld.
  • Planning to Itemize: If you intend to itemize deductions instead of taking the standard deduction, update your W-4 accordingly to reflect these deductions, potentially reducing your withholding for the remainder of the year.

Reflect on your 2023 tax situation. Did you owe a large sum or receive a significant refund? If so, it might be worth adjusting your W-4 now. Your HR department can guide you on submitting a new form and inform you when changes take effect.

2. Look for Tax Losses to Harvest

Review your taxable accounts to identify any investments performing poorly. Tax-loss harvesting allows you to sell these underperforming assets and use the realized losses to offset realized gains and up to $3,000 of ordinary income annually, depending on your filing status.

When harvesting tax losses, ensure you maintain your desired investment mix. Sell the losing investment and replace it with a similar, but not substantially identical, security to avoid the wash-sale rule, which disallows claiming a tax benefit if you repurchase the same or a similar investment within 61 days.

3. Reconsider Itemizing

If you’ve had significant expenses this year—such as buying a home or incurring large medical bills—itemizing may offer greater tax benefits than the standard deduction ($14,600 for single filers and $29,200 for married couples in 2024).

Categories of Itemizable Deductions:

  • Medical Expenses: You can only deduct the amount that exceeds 7.5% of your adjusted gross income.
  • Home Mortgage Interest: Interest on your home mortgage is deductible.
  • State and Local Taxes: Including property and income or sales taxes.
  • Charitable Contributions: Donations to qualified organizations.
  • Theft and Casualty Losses: Due to a federally declared disaster.

Organize your records now if you plan to itemize. Additionally, consider bunching several years’ worth of charitable donations into this year if you usually take the standard deduction but expect to itemize.

4. Boost Your Pre-Tax Contributions

Increasing contributions to pre-tax retirement accounts and HSAs can reduce your current federal taxable income. Consider maximizing contributions to:

Employer-Sponsored Plans:

  • 401(k) and 403(b) plans allow contributions of up to $23,000 for 2024, with an additional $7,500 catch-up contribution for those 50 and older.

Traditional IRAs:

  • Contribution limit is $7,000 (or $8,000 for those 50 or older), with the deadline extending to the federal tax filing date in April 2025.

HSAs:

  • Individuals can save up to $4,150 per year, and families can save up to $8,300, with an additional $1,000 catch-up contribution for those 55 and older. Unlike FSAs, HSA funds roll over year-to-year and can grow over time.

These contributions not only offer immediate tax benefits but also enhance your financial security for the future.

5. Plan for RMDs

The SECURE 2.0 Act raised the age for required minimum distributions (RMDs) from 72 to 73, effective January 1, 2023. This will further increase to 75 starting in 2033.

Key Points:

  • Taxable Withdrawals: Withdrawals from traditional 401(k)s and IRAs are taxable, so plan to manage the tax impact.
  • Avoid Penalties: The penalty for failing to take RMDs has been reduced from 50% to 25% of the missed amount, and to 10% if corrected promptly.

Understanding and planning for RMDs can help minimize taxes and avoid penalties.

6. Consider a Roth Conversion

With market volatility and potential tax increases, now might be a good time for a Roth conversion. This involves transferring money from a traditional IRA to a Roth IRA, paying taxes on the converted amount now to benefit from tax-free withdrawals and no RMDs in retirement.

Benefits of a Roth Conversion:

  • Tax-Free Withdrawals: In retirement, withdrawals from a Roth IRA are tax-free.
  • No RMDs: Roth IRAs do not require RMDs, allowing your investments to grow tax-free for as long as you like.

High earners might also consider a backdoor Roth IRA, which involves making nondeductible contributions to a traditional IRA and then converting those funds to a Roth IRA.

Choose the Moves That Are Right for You

Everyone’s tax situation is unique. Consulting with a tax professional can help you determine the best strategies for your circumstances. By planning now, you can enjoy peace of mind knowing that you’ll be well-prepared when tax time rolls around. A little effort this summer can pay off significantly come next April.

Author:Com21.com,This article is an original creation by Com21.com. If you wish to repost or share, please include an attribution to the source and provide a link to the original article.Post Link:https://www.com21.com/6-midyear-tax-moves-to-consider-now-optimize-your-2024-tax-strategy-this-summer.html

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