End-of-Year Tax Tips for Individuals
Tax laws can be a complex and confusing topic. With the right guidance, you can manage your taxes well, minimize liabilities, take advantage of deductions, and keep more of your hard-earned money.
Keep reading to learn more about essential end-of-year tax tips that can help you navigate the upcoming tax season smoothly and avoid problems in the future.
Tip 1: Take Required Minimum Distributions (RMDs)
If you’re 73 or older, you should take your yearly withdrawals by the end of the year to avoid a heavy penalty. Missing this deadline can attract a 25% penalty on the amount you failed to withdraw. You can also decide to reduce your RMDs in the future, especially if this income pushes you toward a higher tax bracket. Start early by reviewing your RMDs with a professional Weslaco tax accountant to avoid unnecessary penalties.
Tip 2: Maximize Your 401(k) Contributions
Take advantage of your employer’s retirement plan by contributing enough to receive the full match. If possible, contribute the highest amount possible so that you can lower your taxable income for the current year while increasing your retirement savings. If you also want to increase your chances for tax-free withdrawals in the future, consider contributing to a Roth 401(k) instead.
Tip 3: Use Tax-Loss Harvesting to Reduce Capital Gains
Tax-loss harvesting helps reduce your tax load by offsetting realized capital gains with capital losses. Imagine you have two plants: one is growing well, and the other isn’t. To help the growing plant, you can “trade” the unhealthy plant for a tax benefit. This means that, at the end of the year, you can sell underperforming investments to realize losses and offset taxable gains.
If you have more losses than gains, you can use up to $3,000 of those losses to offset another ordinary income. This method can lower your taxable income for the year. Work with a Weslaco CPA to understand which capital gains you can offset with tax-loss harvesting.
Tip 4: Watch Out for Alternative Minimum Tax (AMT)
Imagine the AMT is a special tax rule that can sometimes make your taxes higher, even if you’re not very wealthy. Originally, it was created to prevent the wealthy from using legal deductions to reduce their taxes. However, this tax is beginning to affect middle-class taxpayers, especially those who use deductions like state and local income or property taxes.
Since the AMT calculates taxes separately, you’ll have to pay whichever tax bill is higher. So, if you’re in the AMT territory for 2024, avoid paying the installments due in January 2025 because they won’t be deductible under the AMT in 2024. An experienced accountant can help you determine which AMT applies to you and your income.
Tip 5: Sell Losing Investments to Offset Gains
To reduce your tax liability, try using a strategy known as “loss harvesting.” You can offset any taxable gains you’ve realized this year by selling losing investments. For example, if you have more losses than gains, you can deduct up to $3,000 of the excess loss against another income.
Also, any additional losses can be carried forward to balance future gains. Not sure how to tap into loss harvesting? Consult an experienced Weslaco tax accountant to guide you.
Tip 6: Contribute the Maximum Amount to Your Retirement Accounts
Maxing out the contributions to your retirement accounts (like 401(k)s and IRAs) is a great way to reduce your taxable income. In 2024, the maximum 401(k) contribution is $23,000 ($30,500 if you’re 50 or older). If you’re unable to contribute that much, you can put in a contribution that your employer will match. These contributions are tax-deferred. This means they reduce your current taxable income and grow over time. The sooner you contribute, the sooner your funds can grow tax-free.
File Your Taxes Correctly With Help From Gonzalez and Arrambide, Inc.
Using these year-end tax tips for individuals can greatly impact your financial health. Whether you want to boost your deductions or avoid penalties, it’s important you take proactive steps to manage your taxes early. Our Weslaco tax accountants can help you achieve your financial goals while setting yourself up for success in the upcoming tax season.
At Gonzalez and Arrambide, Inc., we’re here to guide you through the complexities of tax season. Let our skilled staff help you understand what documents you need to file your taxes correctly and maximize your savings. Reach out to us today to start planning for a brighter financial future.
