Consider Roth IRA Conversions
If you are in a low tax bracket (10%, 12%, 22% or 24%) in 2024, converting a traditional IRA to a Roth IRA can be a tax-efficient move. Although the conversions are taxable, future withdrawals will be tax-free as long as the Roth IRA has been open for five years and you are the age of 59½. Keep in mind that the Tax Cuts and Jobs Act of 2017 (TCJA) is expected to sunset in 2025, and the lower tax rates we recommend converting will then be (10%,15%, 25% and 28%). This means it will cost you more to convert your tax-deferred dollars into a Roth IRA beginning in January 2026.

Consider Backdoor IRA Roth Conversions
If you are in a high tax bracket, you are likely to phaseout from contributing to a Roth IRA directly. However, thanks to a tax loophole, many high-income earners are still able to fund a Roth IRA via a strategy that is known as a backdoor Roth IRA conversion. It involves contributing to a traditional IRA, which has no income restrictions, and then converting that contribution to a Roth IRA. If the contribution is non-deductible, the conversion is generally not taxable. However, any earnings or pre-tax funds in the IRA could trigger taxes. The IRS applies the Pro-Rata Rule, meaning if you have pre-tax and post-tax funds in your traditional IRAs, taxes are calculated based on the total balance when executing the conversion.

Consider a Qualified Charitable Distribution
A Qualified Charitable Distribution (QCD) is a tax-efficient way for individuals who are age 70½ or older to donate to charity directly from their Individual Retirement Account (IRA). Instead of withdrawing money from the IRA and then donating it (which could create taxable income), the individual can transfer the money directly to a qualified charity. The distribution is considered tax-free and is not included in your taxable income, making it a powerful tax-planning tool, especially for those who don’t make itemized deductions. For individuals age 73 or older, the QCD can count toward their Required Minimum Distribution (RMD), which they must take. You can donate up to $105,000 per individual in 2024 through a QCD. This strategy allows for charitable giving while reducing taxable income, especially useful for those who need to take RMDs.

Maximize Your Itemized Deductions
Due to the significant increase in the standard deduction from recent tax law changes and the reduction of some popular deductions, fewer taxpayers now itemize on their tax returns. However, some may benefit from alternating between claiming the standard deduction one year and itemizing the next. To maximize this strategy, consider “bunching” deductions into years when you plan to itemize. For instance, you could make larger charitable donations or accelerate deductible medical expenses in the same year to increase the total deductions. This approach can help you take full advantage of itemizing in specific years. Please note that with the sunset of the TCJA, starting in 2026, the standard deduction will be about half of what it is currently, adjusted for inflation. Additionally, the $10,000 cap on state and local tax (SALT) deductions, including real estate taxes, will expire.

Consider Maximizing Contributions to Your Tax-Deferred Accounts and HSAs
If you are in a high tax bracket, contributing pre-tax dollars to retirement accounts such as a 401(k), 403(b), SEP, SIMPLE or traditional IRA can help reduce your taxable income and lower your tax liability.

If you are enrolled in a medical high-deductible plan and if eligible, consider maximizing your Health Savings Account (has) contributions to help reduce your taxable income and have tax-free withdrawals for qualified medical expenses. HSAs offer three tax benefits and are often referred to as the triple tax savings account. Contributions to an HSA are tax deductible, earnings in the account grow tax-free and withdrawals for qualified medical expenses are tax-free.

Consider Harvesting Investment Losses
Tax loss harvesting is a strategy used to help investors lower their taxable income by selling investments that have experienced a loss. These losses can be used to offset capital gains from other investments, and if the losses exceed the gains, they can also offset up to $3,000 of ordinary income per year. Any unused losses can be carried forward to future years. Investors must be mindful of the IRS’ wash sale rule, which prohibits them from repurchasing the same or a “substantially identical” security within 30 days before or after the sale. If this rule is violated, the loss cannot be claimed as a deduction for tax purposes.

Maximize Business Expenses and Defer Income
If you own a business, think about making business-related purchases and expenses before the year ends to lower your taxable income. Additionally, deferring income to the next year can help reduce your current year’s taxable income, potentially decreasing your tax bill and keeping you in a lower tax bracket. If you expect to be in a lower tax bracket next year due to changes in your income, you might also consider delaying income. This could involve postponing invoicing, asking clients or customers to delay payments, or structuring sales as installment payments over multiple years.

As a reminder, if your business is structured as an LLC, Corporation or Limited Partnership, the Corporate Transparent Act (CTA) will require almost all small businesses to electronically report certain information about their beneficial owners to the Financial Crime and Enforcement Network (FinCEN). Existing entities will have until Jan. 1, 2025, to file an initial report or 90 days if the entity was created after Jan. 1, 2024.

Engage in Distribution Planning
If you’re retired or nearing retirement and still years away from claiming Social Security, starting a pension or taking RMDs from an IRA, it might be wise to consider strategic distribution planning. Instead of drawing down your cash or taxable accounts for living expenses, consider withdrawing from your traditional or rollover IRAs, especially if these accounts hold most of your wealth. This can be advantageous because your RMDs may be larger than your actual living expenses. Additionally, if you pass away and your beneficiaries are your children, who may be in their peak earning years, could face higher tax brackets due to the 10-Year Rule on inherited IRAs.

Make Annual Exclusion Gifts
If you’re looking to lower your estate for tax purposes, consider making non-taxable gifts to family and others. In 2024, you can give up to $18,000 per person without triggering the gift tax. Additionally, payments made directly to a school for someone’s tuition or to a healthcare provider for their medical expenses are also considered nontaxable gifts. These gifts won’t affect your annual gift tax exclusion or lifetime exemption.

Make Gifts Using Your Lifetime Exemption
To reduce your estate for tax purposes, consider making gifts that use up your lifetime exemption. These gifts don’t qualify for exclusions such as the annual gift tax exclusion, tuition and medical expense exclusions, or deductions for marital or charitable gifts.