Year-end tax moves to make now
CNN
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There are a couple of weeks left in 2024. That gives you a little time to do any number of things that can reduce your taxes for this year, boost your bottom line, or spare yourself financial penalties.
Here are five options:
1. Harvest your gains and losses
Review any holdings you have in a taxable investment portfolio to see where there are gains and losses. Then consider whether it may make sense for you to capture some of your gains by selling at least a portion of one or more holdings and then offsetting the capital gains tax you'd otherwise owe by also selling some investments that are currently worth less than you bought them for.
"If you have assets that have appreciated in value, consider tax-gain harvesting, (which is) selling assets that have appreciated in value when you have losses to offset the gain," said Dan Snyder, a certified public accountant and director of AICPA Personal Financial Planning.
The rule is your tax losses can offset up to 100% of your taxable gains realized that same year, plus up to $3,000 in ordinary income.
So if you have $10,000 in gains and $12,000 in losses, you won't owe any capital gains tax on the $10,000, and you will be able to deduct $2,000 from your regular income. In addition, you will be allowed to carry over your remaining $1,000 and apply it in a future tax year.
If you want to repurchase a stock or fund that you just sold at a loss, mind the so-called wash-sale rule, which prohibits you from buying that security or anything "substantially identical" either 30 days before or after the loss sale. If you do, you won't be able to apply your capital loss to your 2024 taxes.
2. Add to your retirement savings
Practically speaking, it's probably too late to boost your 2024 contributions to a 401(k), 403(b) or 457 plan at work because the plan administrator may not be able to quickly change the deduction from your last paycheck this month.
But, if you don't have access to those plans, or you otherwise qualify to contribute to an IRA, you do still have time to make a contribution there. The federal contribution limit on IRAs this year is $7,000 (plus an additional $1,000 if you're at least 50). Your 2024 contribution can be made up until tax day next year, the exact date of which hasn't been announced yet but is typically April 15.
A traditional IRA can be funded with before-tax dollars (thereby reducing the money you have to pay income tax on for 2024). But a Roth IRA is funded with after-tax dollars, so you won't get a tax break for 2024 per se, but your contribution will grow tax-free and may be withdrawn tax-free in retirement or for select purposes before then.
3. Give your kids or grandkids a financial gift
If you're financially well off, consider giving some money this year to your children or their children.
You're allowed to give anyone up to $18,000 this year without having to report it to the IRS for gift-tax purposes. So, if you're married, you and your spouse each can give the same child $18,000, for a total of $36,000. And you can give up to $18,000 to as many other individuals as you like.
One benefit: You can enjoy seeing your offspring use the money for something important. "Kids need your help now, not when they are 80. See how your kids manage money. Let them ‘practice' under your oversight," said certified financial planner Mari Adam.
Or, if you're not in the mood for that adventure, but you still want them to benefit, you could put the money into a 529 plan or, with their consent, into a Roth or other IRA account if they don't have extra money to save themselves, Adam said.
Another option: Give them an appreciated security you own, she suggested. "The kids get your basis, but (if their income is low enough) they may not owe any capital gains tax if they sell it or they may owe very little in taxes. It's much better than you selling, paying tax at a high bracket, then giving the money away."
Say shares you bought for $10,000 are now worth $18,000. If you give them to a grandchild, their capital gains basis is the value of the shares the day they receive them. Whereas if you first sold the shares directly you'd owe capital gains tax on the $8,000 gain, leaving you with anywhere from 15% to 37% less in cash to give them, depending on whether the gain was short- or long-term and depending on your tax bracket.
Another benefit to making gifts during your lifetime: You can reduce your estate for estate tax purposes. For most people, the federal estate tax won't be a concern given that it currently lets you exempt just under $14 million from taxation. But if you live in a state with an estate tax, the exemption level may be lower. For example, it's $2 million or less in Massachusetts, Oregon and Rhode Island, according to the Tax Foundation.
4. Get in last-minute check-ups and health purchases
If you have a Flexible Spending Account, that is tax-free money taken out of your paycheck throughout the year that you can use to reimburse yourself for eligible health-related expenses not covered by your insurance. It is money that is exempt from income tax, as well as Social Security and Medicare taxes. The contribution limit for 2024 is $3,200.
Generally speaking, an FSA is a use-it-or-lose-it proposition: If you don't use all of the money in your 2024 account for eligible expenses incurred in 2024, you lose it. But some employers may let you do one of two things (or neither of them): Either let you carry over up to $640 and apply it to your 2025 health-related expenses, or give you a grace period into the new year of up to two and a half months in which you may still book expenses that can be applied to your 2024 balance.
So check your employer's rules and any list your company offers for eligible expenses. Check, too, when the deadline is to file your claims. It may be anywhere from December 31 this year to March 31, 2025.
5. Take your required minimum distribution
If you're 73 or older, you are obligated to take an annual required minimum distribution from your traditional IRAs (including Simple and SEP IRAs).
If you're already retired and 73 or older, you also must start taking RMDs from any tax-deferred 401(k), 403(b) or 457(b) accounts that you may still have. If you're not retired yet, you can postpone your RMDs, unless the rules governing that workplace plan require you to start taking them.
(Note: You do not have to take any RMDs from your Roth IRAs or designated Roth accounts in a 401(k) or 403(b) account.)
The other group of people who have to take RMDs annually are the beneficiaries of a deceased person's retirement accounts. That includes both their traditional and Roth IRAs.
The deadline for taking your RMD is typically December 31, unless this is the first year you are required to take one, in which case the deadline may be April 1 of the following year.
If you fail to take your 2024 RMD on time, you will not only owe income tax on the money withdrawn (unless it's from a beneficiary Roth account) but you also may incur penalties.
"If an account owner fails to withdraw the full amount of the RMD by the due date, the owner is subject to a 25% excise tax on the amount not withdrawn. The 25% excise tax rate is reduced to 10% if the error is corrected within two years," the IRS said this week.
And if you fail to take an RMD at all when you're obligated to, the excise tax may be higher.
(The rules for RMDs are … complex, to put it charitably. So it may pay to talk with a tax adviser well versed in them. In the meantime, here is more guidance and some FAQs on RMDs from the IRS.)
