With only a few weeks remaining in the calendar year (how can this be?!), it’s still not too late to do some last-minute tax planning. There are several ways to reduce your 2024 taxable income; here are a few ideas:
Health Savings Account (HSA) Contributions
If you’re enrolled in a high-deductible health insurance plan and have an HSA, don’t forget to fund it by year-end. For 2024, you can deduct up to $4,150 for individual coverage and $8,300 for the family. Funding your HSA is a deduction from gross income, reducing your taxable income dollar-for-dollar. Any distributions taken from the HSA for medical expenses are not taxable to you.
401(k) Contributions
If you receive a year-end bonus and have not yet fully funded your work 401(k), consider allocating all or part of the bonus to your plan so you can maximize your deduction. Employees can contribute up to $23,000 to their company 401(k) plan for tax year 2024. For those 50 or over, you get an additional catch-up contribution allowance of $7,500, for a maximum 401(k) contribution of $30,500. Designating dollars to an employer 401(k) plan – and not to a Roth IRA – allows these contributions to be considered pretax, which means you don’t have to pay tax on the bonus/wages contributed.
Tax Loss Harvesting
If you have stocks that have not been performing well, consider selling the underperformers. You can deduct up to $3,000 in capital losses annually and any loss over this amount carries forward. Also, these losses can offset capital gains and capital gain distributions you may receive for 2024.
Traditional to Roth IRA Conversion
If you’re in a lower income tax bracket this year and have a traditional IRA account, consider converting it to a Roth account. The amount you transfer will be subject to ordinary income tax, but once converted to a Roth IRA, you’ll no longer have to take required minimum distributions (RMDs) when you turn 73. The earnings grow tax-free, and once you begin taking distributions, they, too, are not subject to tax.
Qualified Charitable Distributions through an IRA
If you must take an RMD from your retirement account, don’t forget that you can take all or part of it as a qualified charitable distribution. Anyone age 70 1/2 or older can designate up to $105,000 of their RMD to go directly to any 501(c)(3) organization, which will decrease your overall taxable income.
Bunching Charitable Donations through use of a Donor Advised Fund (DAF)
If you’d like to contribute to an organization that’s important to you but don’t contribute enough to itemize, consider setting up a donor-advised fund (DAF) and “bunching” a few years’ worth of donations to push you into the itemized deduction status. Any money contributed in 2024 to a DAF will be deductible in tax year 2024 and the funds can be granted to the charitable organization of your choice based on your desired timeline.
College Savings Account Contributions
Don’t forget about deductions to a 529 plan for your children or grandchildren. Ohio taxpayers can deduct up to $4,000 annually for each beneficiary. If you give more than $4,000, the excess carries forward indefinitely. Pennsylvania taxpayers can deduct up to $18,000 in contributions per beneficiary per year ($36,000 if married filing jointly, assuming each spouse had income of at least $18,000) from their Pennsylvania taxable income.
So there’s still time to reduce your 2024 taxable income. Chat with your Schneider Downs tax advisor and financial advisor to consider whether any of these tax savings strategies will work for you. Happy holidays!
About Schneider Downs Tax Services
Schneider Downs’ tax advisors have experience and expertise in a wide range of industries, including Automotive, Construction, Real Estate, Manufacturing, Energy & Resources, Higher Education, Not-for-profits, Transportation and others. Our industry knowledge and focus ensure the delivery of technical tax strategies that can be implemented as practical business initiatives.
To learn more, visit our dedicated Tax Services page.
