November is the best time for tax planning.
Here are 15 tax moves to lower your taxes (now & in the future)
1. Maximizing retirement contributions
Before the year ends, if you have the means, you should consider contributing the maximum allowed $23,000 to traditional 401(k), Roth 401(k), and similar plans.
If you are debating whether to contribute to a traditional 401(k) or Roth 401(k), I wrote a great newsletter previously.
2. Mega Backdoor Roth
This strategy allows high-income earners to save even more in a Roth account, if permitted by a workplace retirement plan.
You contribute to a 401(k) after-tax account and roll the funds over to a Roth IRA or Roth 401(k), shielding against future tax.
Here’s an in-depth newsletter about it.
3. Backdoor Roth
If you have a high income, you can’t contribute to a Roth IRA directly. But, there is a strategy called “Backdoor Roth”.
It involves making a non-deductible contribution (so no tax deduction) to a Traditional IRA, and then converting the amount into Roth.
Importantly, you need to ensure that you have a $0 Traditional IRA/Rollover IRA/SEP/SIMPLE by December 31, otherwise, the conversion will be taxable. I wrote more about the Backdoor Roth strategy in a previous issue.
4. Optimizing Charitable Contributions
If you are planning to donate to charity before the end of the year, consider donating appreciated shares from your taxable brokerage account instead.
Then, buy back those shares with the cash you were going to donate to increase your cost basis.
This allows you to pay less taxes later on due to the increased cost basis.
5. Qualified Charitable Distribution
If you are 70½ or older, you can donate up to $105,000 to a charity directly from your IRA using a QCD.
This strategy allows you to avoid paying any taxes on the distribution, satisfies the Required Minimum Distributions (RMD), and lets you take the standard deduction without itemizing.
6. Tax Loss Harvesting
If you have stocks that have a net loss, consider selling them to offset your other gains or claim a $3,000 capital loss deduction.
This might be challenging, as the stock market is at all-time highs, but if you have a losing security that you’ve lost faith in, this could be a good move.
Just be sure not to buy the same or a similar security within 30 days to avoid the wash sale rule.
7. Tax Gain Harvesting
If your taxable income is below $47,025 (or $94,050 for MFJ) in 2024, consider selling appreciated securities at a gain and buying them back.
This increases the cost basis of your investment and lowers future tax liability (keep in mind state tax).
8. Roth Conversions
Similarly, if you have no income for the year, you can do a Roth conversion, where you convert your Traditional IRA into a Roth IRA.
If your income is below the standard deduction ($14,600), this could be a great way to avoid future taxes, since you convert from a tax-deferred account to a tax-free one.
9. Maximize HSA
HSAs provide many tax benefits, including a tax deduction, tax-free growth, and tax-free withdrawals for medical expenses.
You can contribute $4,150 for individuals or $8,300 for families if you have a HDHP (minimum deductible of $1,600 for individuals and $3,200 for families).
10. Donor-Advised Fund
If you have charitable donations, you may want to consider investing in a donor-advised fund (DAF).
You can contribute a lump sum all at once and then distribute those funds to various charities over several years.
This allows for an immediate deduction that you may have only received if the itemized deduction was larger than the standard deduction.
11. Business Entity
If you are a business owner, choosing the right business structure could help you save thousands in taxes.
Generally, for individuals netting above $100,000, electing S corporation status could be a great tax move.
12. Section 179
If you are a business owner, consider maximizing the benefits of Section 179, which allows you to immediately deduct the cost of qualifying property and equipment as an expense rather than capitalizing the cost.
13. Better Expense Tracking
Keeping your books and expenses organized can save you a lot of money in your business.
Start now so you don’t get rushed at the end of the year.
Many small business owners miss deductions because of a lack of proper tracking.
14. Deferring Income
If you are self-employed or do freelance work, you can try to delay billings until late December.
This can help ensure that you won’t receive payment until the next year (only makes sense if you will be in the same or a lower tax bracket next year).
15. Gift
In 2024, you can give away up to $18,000 ($36,000 for married couples) per person without impacting your lifetime estate and gift tax exemptions.
This won’t reduce your taxes now but will allow you to strategically transfer wealth to your heirs tax-free.
Any questions about any of these? Just reply to this email!
See you next Saturday.
MC, CPA