It is time to start year-end tax planning! It is hard to believe that 2024 is already coming to a close. With the elections less than two weeks away we face considerable long-term uncertainty with regard to tax rates, but short-term 2025 will likely keep the same rules as 2024 simply because any new administration will likely take a year to get any tax law changes through congress. However, 2026 is a different story. The 2017 Tax Cut and Job Act is set to expire at the end of 2025, which means that if congress does nothing, we will face a considerable increase in taxes in 2026. If you are interested in learning more about the expiring tax cuts, please see our article from April: Tax Cuts Expiring.
Of course, the results of the election, including the presidential and congressional races, will have a significant impact on future tax policy. Trump has stated that he would like to make the 2017 Tax Cuts permanent, while Harris has been less clear. Her general statements include an increase in corporate rates and a desire to keep the existing rates for taxpayers making less than $400,000 a year. Both presidential candidates may be forced to compromise their positions depending on who controls congress. Taxfoundation.org has a good summary of both presidential candidates tax policies: https://taxfoundation.org/research/federal-tax/2024-tax-plans/#Candidates
So, what tax planning steps should you consider in 2024? Here are a few of our top ideas as we close out the year.
1. Manage income tax brackets
This is still our favorite strategy for minimizing taxes. If your income is high in the current year, pushing you into higher tax brackets, consider steps to reduce current year income including:
· Increase contributions to deferred retirement plans
· Increase charitable contributions
· Advance necessary small business spending
Conversely, if your income is low, consider opportunities to recognize income in the lower tax brackets including:
· Convert some of your retirement accounts to Roth
· Harvest capital gains in your taxable investment accounts
2. Recognize capital losses
The stock market is up this year, but if you have positions that are at a loss, consider selling those positions to harvest the losses.
3. Donate Appreciated Stock
Donating appreciated stock is an excellent way to be charitable while reducing your tax bill. As a reminder, donations of appreciated stock receive a deduction for the value at the date of donation (subject to limitations), and the gain on the stock is never realized. It is like getting a double deduction.
As always, we encourage you to consider your full picture. If you would like to learn more about any of these ideas or would like to discuss the details of your situation, please give us a call.
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