The Holiday Guide to Taxes - 2024 Tax Advice
With the Halloween costumes put away and the Thanksgiving menu being finalized,
it is time to plan and execute strategies for the rest of the year that may help lower your taxes.
The recent election results put the Republicans in control of the White House, Senate and House and significantly increase the likelihood that an extension of the TCJA tax rates will be approved in the next two years. Regardless of an extension to the TCJA rates starting in 2026, you still have two more years (2024 & 2025) of low Federal tax rates.
Focus on the now and review the list below to see if there are steps you can take now to reduce your 2024 tax bill.
PERSONAL TAX STRATEGIES
Maximize your 401(k) deferral
Make sure you are on track for your 401(k) contributions to be maxed out by year end. The 2024 contribution limit is $23,000 with an additional $7,500 catch-up contribution if you are 50 or older.
Also consider whether contributions to a ROTH 401(k) would be more beneficial. This would cause your current contribution to be after-tax (resulting in higher, not lower) taxes. This strategy generally works well when you are younger and not taxed at the highest tax rates.
Health Savings Account
Make sure you are on track to maximize your HSA contributions by year end. The 2024 maximum contribution is $4,150 for individual plans and $8,300 for family plans. If you are 55 or older, you can contribute an additional $1,000 catch-up contribution.
Monitor your Non-Retirement Investment Portfolio
With the fluctuations in the stock market, monitor your taxable portfolio and harvest tax losses to offset current year capital gains. Ensure that tax loss harvesting makes sense when considering your overall investment strategy and be careful of any wash sale repurchases.
Use Back Door ROTH
While you technically have until 4/15/2025 to fund your back door ROTH for 2024, we advise that you complete the process before the end of the year to avoid any timing issues. Remember that to get the most benefit, your IRA should have a zero balance before your 2023 contribution.
Plan for Charitable Contributions
Most itemized deductions disappeared in 2018 as an offset to the lower TCJA rates and the largest itemized deduction left is your charitable donations. Ensure that you make the donations before the ball drops in Times Square, and that you receive the proper documentation from the charity. If you have extra cash and are near the standard deduction, you may want to consider bunching charitable gifts to get the benefit of itemizing in one year and taking the standard deduction in another and/or donating appreciated stock rather than cash.Make Your Home More Energy Efficient
Thanks to the Inflation Reduction Act of 2022, there are some major incentives to making your home "greener." For the 2024 tax year, the residential clean energy credit -- which gives money back for installing solar panels, geothermal heat pumps, fuel cells and battery storage -- remains at 30%.
Tax credits for energy improvements aren't limited to alternative energy. Simply installing new, qualified Energy Star-certified furnaces and boilers can reap tax credits too, although they have an annual limit of $1,200. Be sure to check the manufacturer's tax certification statement, as not every Energy Star-certified product is eligible.
The incoming administration has proposed modifying or eliminating these credits, so if your home is in need of energy efficient improvements, this may be the year to upgrade.
Minimize paying IRS Interest
The higher interest rates are beneficial for your savings accounts but they mean the IRS gets to charge higher rates on underpaid estimates. Verify that you have paid your required estimated payments, which are generally 110% of your prior year tax. If you find yourself short, you can make additional payments via payroll withholding or with a fourth quarter estimate due on 1/15/2025.
TAX PLANNING STRATEGIES FOR YOUR PRACTICE
Check on the PTE status in your state
Over 36 states now allow owners of PTEs (pass-through entities) like S-corps to pay state tax at the business/practice level. This rule is a workaround to avoid the cap on state tax deductibility on the personal return and can significantly reduce your total tax bill. To get the immediate benefit, the payment must be made before the end of 2024.Consider adding a Profit Sharing component to your 401k plan
Have you maximized your 401k deferrals (see above) but are looking for additional practice deductions and sitting on extra cash? Ensure that your 401k plan has a profit sharing option so you can potentially put another $46,000 into your retirement funds and get a tax deduction for it.
Pay yourself and any vendors before year-end
Once the clock strikes midnight on December 31st, all payments (except for a few odd exceptions like profit sharing) are considered 2025 expenses. Make sure that you have paid yourself for any Augusta Rule rental costs and reimbursed yourself for business mileage before year end. You can also pay the dental supply bill due in early January during the last week of December if you are looking for additional deductions.
Purchase NEEDED equipment
This is always the equipment salesperson’s favorite way for you to reduce your tax bill as you can use the bonus depreciation rules to deduct the full cost of the equipment in 2024 rather than spreading it across the next five years. If you:
have some equipment that is dying and you need to replace in the next 6 months
you need to purchase a new piece of equipment in the next 12 months and can get a super fantastic amazing deal with year-end pricing,
…it may be a great time to purchase that equipment and reduce your tax bill at the same time.
If you just think the new equipment is really cool and could possibly benefit the practice, you need to run an ROI analysis before moving forward. Never purchase equipment just to save tax.
Since each practice and each situation is different, please schedule a consultation with JNG Advisors today to see what tax planning strategies you can implement.