Maximize Retirement Contributions

  • Why It Matters: Contributions to qualified retirement accounts can significantly reduce your taxable income, providing a double benefit of immediate tax savings and long-term financial security.
  • Opportunities:
    1. For Traditional IRAs and Roth IRAs, you can contribute up to $6,500 for 2024 ($7,500 if age 50 or older) until April 15, 2025.
    2. For SEP IRAs or Solo 401(k)s (common among self-employed individuals), contribution limits are higher and depend on your income. These contributions can also be made up to the tax filing deadline, including extensions.
    3. Consider maximizing employer-sponsored plans, such as a 401(k). The employee deferral limit for 2024 is $23,000 (or $30,000 if age 50 or older).

Review Withholding and Estimated Payments

  • Why It Matters: Inadequate withholding or underestimated payments could lead to underpayment penalties. Conversely, overpayment means giving the government an interest-free loan.
  • Action Steps:
    1. Use the IRS Withholding Estimator to check if your withholding aligns with your 2024 income and tax obligations.
    2. Adjust Form W-4 if necessary to increase or decrease withholding for the remainder of 2024.
    3. For individuals paying estimated taxes, ensure your fourth-quarter payment (due January 15, 2025) adequately covers any shortfalls from previous quarters.

Harvest Tax Losses

  • Why It Matters: Selling underperforming investments by December 31, 2024, allows you to use losses to offset gains and potentially reduce your taxable income.
  • Opportunities:
    1. Net Capital Loss Deduction: Up to $3,000 of net capital losses can be deducted against ordinary income ($1,500 if married filing separately).
    2. Wash Sale Rule: Avoid repurchasing the same or substantially identical investments within 30 days before or after the sale to ensure losses remain deductible.
    3. Consider pairing gains and losses to reduce capital gains taxes. Work with your financial advisor to evaluate your portfolio.

Charitable Contributions

  • Why It Matters: Qualified charitable donations made before December 31, 2024, can reduce taxable income while supporting causes you care about.
  • Key Considerations:
    1. Ensure donations are made to qualified 501(c)(3) organizations.
    2. For cash donations, deduct up to 60% of your adjusted gross income (AGI).
    3. Non-cash donations (e.g., appreciated securities) may also be deductible. Fair market value typically applies, avoiding capital gains taxes.
    4. For larger gifts, explore donor-advised funds or Qualified Charitable Distributions (QCDs) if you are 70½ or older.

Tax Planning for S Corporations and Partnerships

  • Why It Matters: Small business entities have unique opportunities to reduce taxable income and manage cash flow effectively before year-end.
  • Actionable Strategies:
    1. Accelerate Deductions: Consider prepaying certain business expenses like rent, utilities, or insurance if you’re on a cash-basis accounting method.
    2. Defer Income: If possible, delay invoicing until January 2025 to push income into the next tax year.
    3. Retirement Contributions for Owners: S Corporation and partnership owners can maximize contributions to retirement plans like SEP IRAs or Solo 401(k)s, reducing both personal and business taxable income.
    4. Bonuses: Pay employee bonuses before December 31, 2024, to claim the deduction in the current tax year.

Business Vehicle Considerations: Purchase vs. Lease

  • Why It Matters: Choosing to purchase or lease a business vehicle has different tax implications, and understanding IRS rules ensures compliance and maximizes deductions.
  • Purchasing a Business Vehicle:
    1. Vehicles with a gross vehicle weight rating (GVWR) over 6,000 pounds may qualify for bonus depreciation under Section 179. For 2024, the deduction is limited to the business-use percentage of the vehicle.
    2. Luxury vehicles have depreciation caps. For 2024, the maximum first-year depreciation for vehicles under the luxury limit is $20,200, with additional amounts possible using bonus depreciation.
    3. To qualify, the vehicle must be used more than 50% for business purposes.
    4. Keep detailed mileage logs to substantiate the business use.
  • Leasing a Business Vehicle:
    1. Lease payments are deductible based on the business-use percentage, but a portion may be subject to an “income inclusion” amount for high-value leases.
    2. Leasing offers lower upfront costs compared to purchasing, which may help cash flow.
    3. Evaluate the expected use and potential mileage limits to avoid additional fees.

If you implement these strategies before the year’s end, you can reduce your 2024 taxes and enhance your financial outlook for 2025. Book a session with a Redstone Accounting tax advisor to make sure you’re fully capitalizing on all opportunities. 

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