Last-Minute Moves to Boost Your Tax Deductions Before Year-End
The clock is ticking on 2024, but there’s still time to take steps that can lower your tax bill. Whether you’re an individual taxpayer or a small business owner, the end of the year is your last chance to make tax-savvy financial moves that could translate into significant savings when it’s time to file your return.
In Week 2 of our 6-part series on preparing for the 2024 year-end tax season, we’re focusing on strategies to maximize your year-end tax deductions. From charitable giving to funding retirement accounts, these actionable steps can help you make the most of every deduction available before December 31.
1. Charitable Giving: Make a Difference and Save
Donating to qualified charities is one of the most popular ways to give back and receive a tax deduction.
How It Works
Donations made to IRS-approved 501(c)(3) organizations are tax-deductible if you itemize deductions.
Eligible contributions can include cash donations, non-cash items like clothing or household goods, or appreciated assets such as stocks.
Key Tips
Document Everything: Always keep receipts or acknowledgments from the charity. For donations over $250, a written acknowledgment is required.
Use Appreciated Assets: Donating stocks or mutual funds that have increased in value allows you to avoid paying capital gains tax while still claiming the full market value of the asset as a deduction.
Deadline: All donations must be made by December 31, 2024, to count for this tax year.
2. Contribute to a Health Savings Account (HSA)
If you have a high-deductible health plan (HDHP), contributing to a Health Savings Account (HSA) is a smart way to save for medical expenses while lowering your taxable income.
How It Works
Contributions to an HSA are tax-deductible.
For 2024, the contribution limits are $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution allowed for those aged 55 or older.
Key Tips
Make the Full Contribution: If you haven’t reached the maximum contribution for 2024, now is the time to fund your HSA.
Use Employer Contributions: Employer contributions to your HSA also count toward the annual limit, so include those when calculating your contributions.
Deadline: You have until April 15, 2025, to contribute to an HSA for the 2024 tax year, but contributing before year-end helps lower your current year’s taxable income sooner.
3. Prepay Certain Expenses
For taxpayers who itemize deductions, prepaying certain expenses before the end of the year can boost your deductions for 2024.
What to Prepay
Mortgage Interest: If you make your January mortgage payment in December, you can deduct the interest paid this year.
Property Taxes: Paying your property tax bill early can increase your deductible expenses for the year.
State and Local Taxes: Consider prepaying estimated state and local income taxes. However, keep in mind the $10,000 cap on the state and local tax deduction (SALT) if you’re itemizing.
Key Tips
Ensure that prepayments align with your overall tax strategy, especially if you plan to itemize deductions in 2024 but may take the standard deduction in 2025.
Deadline: Payments must be made by December 31, 2024, to be deductible for this tax year.
4. Max Out Your Retirement Contributions
Contributing to retirement accounts is a great way to reduce your taxable income while securing your financial future.
Traditional IRAs
Contributions to a traditional IRA are tax-deductible for many taxpayers.
The 2024 contribution limit is $6,500, or $7,500 if you’re 50 or older.
401(k) Plans
Contributions to a workplace 401(k) plan reduce your taxable income.
The 2024 contribution limit is $23,000, or $30,500 if you’re 50 or older.
Key Tips
Talk to Your Employer: If you haven’t maxed out your 401(k) contributions, you may be able to increase your paycheck deferrals before the end of the year.
Check Deduction Eligibility: IRA deduction eligibility may phase out based on income if you or your spouse participate in a workplace retirement plan.
Deadline: Contributions to 401(k) plans must be made by December 31, 2024, while IRA contributions for 2024 can be made up until April 15, 2025.
5. Review Business Expenses and Purchases
Small business owners have additional opportunities to lower taxable income through strategic year-end spending.
Deductible Business Expenses
Stock up on office supplies or equipment that you plan to use in the near future.
Pay outstanding bills for services such as utilities, rent, or advertising.
Section 179 Deductions
If you’ve purchased or plan to purchase business equipment, you may qualify to deduct the entire cost under Section 179. For 2024, the maximum deduction is $1,180,000.
Key Tips
Keep Receipts: Documentation is essential for claiming these deductions.
Plan Strategically: Only make purchases you truly need for your business to avoid unnecessary expenses.
Deadline: Business expenses must be paid or incurred by December 31, 2024, to be deductible this year.
6. Harvest Investment Losses
If your investments have lost value, you can sell those assets to offset taxable gains from other investments—a strategy known as tax-loss harvesting.
How It Works
You can offset capital gains dollar-for-dollar with losses.
If your losses exceed your gains, you can deduct up to $3,000 against ordinary income and carry over additional losses to future tax years.
Key Tips
Avoid the wash-sale rule, which disallows the deduction if you buy back the same or a substantially identical investment within 30 days.
Deadline: Trades must be settled by December 31, 2024, to count for this tax year.
Final Thoughts
Taking these last-minute steps before the end of the year can significantly impact your 2024 tax liability. Whether it’s maximizing deductions through charitable giving, funding your retirement accounts, or making strategic business purchases, now is the time to act.
At On Target Tax Services, we’re here to help you identify the best tax-saving opportunities for your unique situation. If you have questions about year-end strategies or need assistance preparing for tax season, contact us today.
Stay tuned for Week 3 in our series, where we’ll cover “2024 Tax Law Changes: What You Need to Know Before Filing” Let’s make this tax season your smoothest one yet!
