The end of the year is a great time to soak up holiday cheer with family…and think about your tax planning strategy. The goal is to minimize your tax liabilities and maximize your financial growth. This article provides an overview of year-end tax strategies for businesses and individuals, highlighting specific techniques to optimize deductions and credits.

Tax Planning Strategies for Individuals 

1. Review Your FSA and HSA 

Maximize Contributions to HSA 

A Health Savings Account (HSA) is a medical savings account offered to taxpayers with a high-deductible health plan. The funds contributed to an HSA aren't subject to federal income tax at the time of deposit. For the year 2024, you can contribute up to: 

• $4,150 for Individuals
• $8,300 for Families
• An Additional $1,000 if You are 55 or Older 

Remember, you have until the tax filing day (April 15th, 2025) to make these contributions for the 2024 tax year. 

Utilize Your FSA 

A Flexible Spending Account (FSA) allows you to set aside pre-tax dollars for eligible healthcare expenditures. However, FSAs typically follow a "use it or lose it" policy, requiring you to spend the funds by the end of the plan year. Be sure to use up your FSA balance before December 31st so you don’t leave any tax-free money on the table. 

2. Leverage Charitable Donations

Making charitable contributions can reduce taxable income if you itemize your deductions on your federal tax return (Form 1040, Schedule A). If you usually take the standard deduction, consider a "bunching" strategy: consolidate multiple years’ worth of donations in a single tax year to increase your itemized deductions above the standard deduction threshold.  

3. Implement Tax Harvesting Strategy 

Tax harvesting involves selling investments you own that have decreased in value to offset capital gains from other investments. However, be aware of the wash sale rules that prohibit you from repurchasing the same or substantially identical investment within 30 days of the sale. 

4. Maximize Retirement Savings 

Maximize 401(k) Deferrals 

Contributions to your 401(k) are typically made pre-tax, reducing your taxable income. In 2024, the 401(k) contribution limit is $23,000 ($30,000 for those 50 and older). 

Contribute to IRAs 

The contribution limit for IRAs in 2024 is $7,000 (or $8,000 if you’re 50 or older). You have until April 15, 2025, to make these contributions. Depending on income and filing status, IRA contributions may also qualify for the Saver’s Credit, a tax credit that directly reduces your tax liability. 

5. Contribute to 529 Plans

Contributions to 529 plans grow tax-free, allowing for potential significant savings over time while preparing for education expenses. Some states, like Nebraska, allow for state income tax deductions for 529 plan contributions. 

As of 2024, 529 plans have an option to roll over funds tax-free to a Roth IRA account for the designated beneficiary. This is an alternative tax savings strategy for unused 529 funds. Certain criteria and limits must be applied. For personalized advice on how this option might benefit your specific situation, please contact your tax advisor.

6. Consider Home Upgrades  

Investing in energy-efficient home improvements can qualify you for annual tax credits. Check out this article for a list of eligible improvements: Expanded Eligibility + Individual Residential Energy Credits. 

7. Pre-Pay Home Mortgage Interest 

Paying your January 2025 mortgage payment by December 31 allows you to claim the interest on your 2024 tax return, which may increase your mortgage interest deduction. 

8. Optimize Gifting Strategies 

For 2024, the IRS allows an annual gift tax exclusion of up to $18,000 per recipient. This means you can give away this amount to as many people as you like without incurring any gift tax. 

Payments made directly to medical or academic institutions on behalf of beneficiaries are excluded from taxable gifts.  

The current estate tax exemption is scheduled to sunset at the end of 2025, potentially reducing the exemption in half.  

9. Understand Required Minimum Distributions (RMDs) 

If you are 73 or older, you must take a minimum distribution from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account. The RMD amount is based on specific IRS life expectancy tables and your account balance. Note that you can defer the first distribution until April of next year. 

Tax Planning Strategies for Businesses 

1. Maximize Deductions and Credits 

Claim QBI Deduction 

The Qualified Business Income (QBI) deduction allows eligible businesses to deduct up to 20% of their qualified business income. However, the deduction is subject to limitations based on the taxpayer's taxable income, the type of business, the amount of W-2 wages paid to employees by the business, and the unadjusted basis of certain property. 

Optimize Depreciation Deductions 

Businesses can take advantage of the Section 179 expense deduction for certain property and the 60% bonus depreciation deduction for qualifying property. 

2. Leverage Retirement Plans 

Contributing to a profit-sharing retirement plan can provide tax advantages. Contributions are tax-deductible for the employee, and the funds grow tax-deferred. 

3. Time Income and Expenses 

Strategic timing of income and expenses can influence your taxable income. Defer income or accelerate expenses, if beneficial, to manage your tax liability. 

4. Understand the Tax Advantages of Passthrough Entities 

Passthrough entities, such as S corporations and partnerships, can provide tax advantages. For example, making state tax payments from a passthrough business can be more beneficial than making them personally. 

5. Take Advantage of Real Estate and Energy Tax Credits 

Real estate investors can benefit from accelerated depreciation through cost segregation studies. Additionally, businesses can claim energy tax credits for qualifying renewable energy projects.

How Lutz’s Tax Planning Services Can Help 

By employing strategic tax strategies, you can lower your tax burden, improve your financial position, and ensure compliance with tax laws. Tax laws are complex and change often, so it's always a good idea to consult with a tax advisor to tailor a tax strategy that fits your specific circumstances. Lutz offers expert tax planning services to provide you and your business with the knowledge and resources to make smart decisions and minimize your tax liability. If you have questions, please contact us.