As the year draws to a close, it is an opportune moment to reassess your financial strategy. With only weeks remaining, strategic financial moves can be made to optimise your tax liabilities for 2024. This not only positions you for a financially sound start to the new year but may also enhance long-term economic wellbeing.
Utilising the final days of 2024 to implement thoughtful financial strategies can significantly influence your financial trajectory. By carefully reviewing investments, retirement contributions, and taxable income, you can realise immediate tax benefits and bolster future financial security. Acting now, rather than deferring decisions, provides a strategic advantage.
Harvesting Gains and Losses
In the closing weeks of each year, many investors evaluate their investment portfolios for potential gains and losses. It is worthwhile to consider selling some holdings to capture gains while also offsetting any taxable income through losses. This method, known as tax-gain harvesting, can effectively manage your tax liabilities by utilizing financial losses to counterbalance gains. According to Dan Snyder, a certified public accountant, tax losses can offset up to 100% of your taxable gains in the same year, with an additional allowance of up to $3,000 towards ordinary income. Proactively managing these financial aspects now can have a lasting impact on your tax obligations for the year.
Maximising Retirement Contributions
While the window to increase contributions to workplace plans like 401(k) is closing rapidly, you still have time to contribute to an IRA. Traditional IRAs offer the advantage of reducing taxable income, whereas Roth IRAs provide tax-free growth and withdrawals. The contributions made before tax day next year are eligible for the 2024 tax year. Contribute up to $7,000, or $8,000 if you are over 50, to bolster your retirement savings. Even though time is limited, making these contributions can yield significant future benefits.
Financial Gifts to Family
If you are in a sound financial position, consider giving monetary gifts to children or grandchildren. In 2024, individuals can gift up to $18,000 per person without needing to report it to the IRS for gift-tax purposes. Married couples can double this amount for each recipient, thus easing financial burdens on their loved ones. As noted by financial planner Mari Adam, giving now allows you to witness the benefits of your contribution: “Kids need your help now, not when they are 80.” Investing gifts into security or savings accounts can help family members grow their wealth tax-efficiently.
Utilising Flexible Spending Accounts
Flexible Spending Accounts (FSAs) are valuable tools to manage eligible health expenses tax-free. With a contribution limit of $3,200 for 2024, you must be aware of your account balance to avoid forfeiting unspent funds. Most FSAs operate on a use-it-or-lose-it basis, but some might allow small rollovers or extended spending windows. Understanding your employer’s FSA rules ensures that you maximise these benefits before the year’s end.
Mandatory Distributions for Retirees
For those aged 73 and older, taking Required Minimum Distributions (RMDs) from traditional retirement accounts is necessary. Failing to do so can result in significant penalties, including an excise tax as high as 25% on missed distributions. To avoid additional taxes and penalties, ensure your RMDs are processed before the 31st of December. If this is your first year, April 1st of the following year may be an alternative deadline. To navigate these complexities, consider consulting a tax advisor who understands the intricate rules surrounding RMDs.
Assessing Tax Efficient Giving
Before the year concludes, review charitable contributions made throughout the year. Gifts to qualified charitable organisations can reduce your taxable income, providing you with deductions in exchange for your generosity. Keep accurate records of all donations, ensuring they align with IRS standards. Charitable giving not only benefits those in need but also presents an opportunity for tax-savvy individuals to optimise their financial plans.
Strategising Business Tax Deductions
If you own a business, this is the time to evaluate expenses that may qualify for tax deductions. From office supplies to travel expenses, minor strategic purchases or payments can significantly lower your taxable income. Document all relevant transactions meticulously to guarantee compliance when reporting to tax authorities. Ensure all potential deductions are explored before the close of the fiscal year to maximise their impact.
Evaluating Investment Performance
The end of the year is a strategic time to evaluate the performance of your investment portfolio. By recognising gains and losses, investors can recalibrate their strategies for the upcoming year. This recalibration can present opportunities for gains and minimising future risks. Consistent review and adjustment to align with market conditions are essential components of maintaining a healthy financial outlook.
Finalising Year-End Financial Checks
With only weeks left in the year, it is important to finalise any pending financial activities. This could include settling debts or reviewing insurance policies to ensure they align with your future goals. Proactively managing these tasks can lead to a more organised and financially sound start to the new year. Taking small yet deliberate actions now can prevent future financial strain and optimise your position.
Enhancing Financial Literacy and Planning
Improving financial literacy is an ongoing process that can pay dividends in the future. Take advantage of this time to reflect on financial goals and consider speaking with a financial advisor to increase your understanding of intricate financial products. The year-end is not merely a countdown to resetting your calendar but a valuable opportunity to advance financial knowledge and preparedness.
Taking proactive financial actions now can ease future fiscal challenges. Act today to ensure stability and savings.