As the year comes to a close, now is the perfect time to start planning for tax season. Preparing early can help you identify tax-saving opportunities, avoid surprises, and make filing easier when tax time arrives. Below are some key year-end tax prep strategies that could save you money and maximize your refund.
1. Check Your Filing Status:
Life changes, such as marriage, divorce, or the arrival of a new child, can impact your filing status and, ultimately, your tax bill. Your filing status affects your tax bracket, eligibility for certain credits, and even your standard deduction amount.
2. Standard or Itemized Deductions:
Most taxpayers opt for the standard deduction because it simplifies the process, but if you have significant deductible expenses, itemizing could save you more.
2024 Standard Deduction: $14,600 for single filers, $21,900 for head of household filers, and $29,200 for married couples filing jointly.
When to Itemize: If your deductible expenses—such as mortgage interest, medical costs, or charitable contributions—exceed the standard deduction, you may want to itemize. Keep all receipts and records for eligible expenses to ensure you maximize your deductions.
3. Max Out Retirement Contributions:
Contributing to a retirement account may reduce your taxable income and help you save for the future.
401(k) and 403(b) Contribution Limits: In 2024, you can contribute up to $23,000 to a 401(k) or 403(b) if you're under 50, or up to $30,500 if you’re 50 or older.
IRA Contribution Limits: You can contribute up to $7,000 (or $8,000 if you’re over 50) to a traditional or Roth IRA.
4. Consider Charitable Contributions
If you plan to itemize deductions, charitable donations can be a powerful tax-saving tool. Keep records of your donations to ensure you receive the full tax benefit.
For cash donations made to a qualified nonprofit, you can take a tax deduction of up to 60% of your adjusted gross income.
If you have clothes or household goods you no longer use, you can deduct their fair market value when you donate them to a qualified charity. You must get a written acknowledgment from the charity for donations valued at $250 or more.
5. Review Capital Gains and Losses
Selling stocks or investments impacts your tax bill, so now’s a good time to review your portfolio for tax purposes.
Capital Gains: If you profited from stock sales, you’ll owe taxes on these gains. Long-term capital gains (on assets held over a year) are taxed at lower rates than short-term gains, which are taxed as ordinary income.
Tax-Loss Harvesting: If you have underperforming stocks, consider selling them to offset gains from other investments. Tax-loss harvesting can help lower your taxable income.
6.Don’t Forget Cryptocurrency Transactions:
Cryptocurrency transactions—whether buying, selling, or trading—are taxable events. Recordkeeping: Track all transactions and keep a record of your crypto activity for accurate reporting.
Taxable Gains: If you made a profit from selling or trading cryptocurrency, you’ll need to report it on your tax return. Crypto gains are subject to capital gains tax rates based on how long you held the asset.
7. Make Estimated Payments if Needed:
If you’re self-employed or earn extra income from a side gig, be sure to make estimated payments to avoid penalties.
Quarterly Payments: Self-employed individuals should consider making quarterly estimated tax payments to stay in compliance and avoid late-payment penalties.
8. Gather and Organize Your Documents
Gathering your financial documents now can make filing much easier.
Income Records: Collect W-2s, 1099s, and other income statements from all sources.
Expense Receipts: Keep records of deductible expenses, such as medical bills, charitable donations, and mortgage interest payments.
Bank and Investment Statements: Investment and bank statements help track income, contributions, and deductions accurately.
An organized approach to your documents will ensure that nothing is overlooked and will speed up the filing process.
Taking time to prepare for taxes now can make tax season far smoother and potentially reduce your tax bill. By exploring the tax-saving strategies above, you’ll be better prepared for filing next year and may even see significant savings.
If you’d like to discuss these strategies or need assistance with other tax-related questions, don’t hesitate to reach out to us.
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