As we navigate through 2024, uncertainty looms over the global economy and financial markets. While we cannot predict the future, one thing we can control is our approach to taxes. Strategic tax planning can help you keep more of your hard-earned money and position your savings for growth.
Here are seven tax-smart steps to consider early in the year:
- Seize Available Deductions: The IRS has widened tax brackets and increased standard deductions and savings incentives for 2024. Assess your itemized deductions, including state and local taxes, medical expenses, mortgage interest, and charitable donations. Bunching deductions into 2024 may allow you to maximize write-offs by itemizing deductions.
- Make the Most of Higher Saving Incentives: Maximize contributions to tax-advantaged accounts such as IRAs, HSAs, and 529 college savings plans. Contribution limits have increased for 2024, offering opportunities for tax-deferred growth and potential tax deductions. Consider contributing earlier in the year to allow more time for your investments to grow.
- Put Your Savings to Work: Optimize tax efficiency by strategically allocating assets across taxable and tax-advantaged accounts. Hold interest-bearing investments like bonds and CDs in tax-deferred accounts to minimize taxes on income. Conversely, prioritize stocks in taxable accounts to benefit from lower capital gains rates.
- Tax-Loss Harvesting: Utilize tax-loss harvesting in nonretirement accounts to offset gains and reduce taxable income. Selling underperforming assets and reinvesting in similar securities can help optimize tax efficiency. Be mindful of the wash-sale rule and consult with a tax advisor for personalized guidance.
- Consider a Roth Conversion: Evaluate the benefits of converting traditional IRA assets to a Roth IRA. With potentially lower investment values in 2024, you can convert more shares for the same tax liability. Additionally, take advantage of current tax rates, as they are set to increase in 2026.
- Do a Checkup: Conduct a financial checkup to ensure accurate tax withholding and maximize available deductions and credits. Leverage tools provided by the IRS to review federal income tax withholding and consult state tax authorities for state-specific guidance. Consider adjustments based on remote work arrangements and residency options.
- Revisit Your Estate Plan: Review your estate plan in light of potential changes to tax laws, particularly with the sunset provisions of the 2017 Tax Cuts and Jobs Act approaching in 2025. Accelerate gifting and donation strategies to take advantage of current estate and gift tax exclusions.
In conclusion, proactive tax planning is essential throughout the year to minimize tax liabilities and optimize financial outcomes. Partnering with a tax advisor and financial professional can provide tailored guidance and support in developing a tax-smart investing plan. By implementing these key tax moves for 2024, you can take control of your tax situation and enhance your overall financial well-being.
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