As the year draws to a close, it’s a great time to think about the upcoming tax season and how you can plan ahead to maximize savings. People are wrapping up their end-of-year finances, holidays are on the horizon, and soon you’ll be ringing in the new year.
We know that as the fourth quarter begins, it’s a hectic time for everyone. Here are our top tips to help you get ready.
1. Max Out Retirement Contributions
If you have a 401(k) retirement account, now is the time to consider maximizing your contributions. Contribution limits can change yearly, so make sure to try and maximize your contributions as much as possible. If you’re 50 or older, you can also make “catch-up” contributions.
Contributing more to your 401(k) lowers your taxable income, so you can save more for retirement and pay less in taxes. If you want to adjust your contributions simply login to your Slavic401k participant portal to manage your contribution amount. Watch Slavic401k Participant Portal Overview Webinar for a step-by-step walkthrough. You can also contact your company’s Human Resources team to discuss the options available to you.
For those with a Traditional or Roth IRA, you can check the contribution limits on the IRS website. Be sure to review and adjust your contributions before year-end to get the most out of these accounts.
2. Cut Losses to Offset Gains
One popular end-of-year strategy is “tax-loss harvesting.” This allows investors to sell off underperforming assets, like stocks or mutual funds, to realize losses and offset any gains. Offsetting gains can lower your tax bill significantly.
If your losses exceed your gains, you can apply up to $3,000 against ordinary income, with any remaining losses carried forward to future years. This cycle can be repeated annually to help you manage your tax burden.
You can learn more about capital gains and losses here.
3. Use Flexible Spending Accounts (FSAs)
If your employer offers an FSA, make sure to use it wisely. FSAs allow you to set aside pre-tax dollars for medical or childcare expenses, effectively lowering your taxable income. However, FSAs are typically “use it or lose it,” so if you have funds remaining at year’s end, you’ll want to spend them to avoid forfeiture. If you still have funds to use, consider scheduling an end-of-year doctor’s visit, getting new glasses or contacts, or stocking up on your prescriptions to ensure you use as much of your money as possible.
Many plans offer a grace period, so check with your employer to see if they’ve adopted the IRS-approved 2024 grace period, allowing you to spend 2024 funds through March 2025.
4. Make Charitable Contributions
Charitable donations are a great way to give back, and they can help reduce your tax burden if you itemize deductions. Be sure to keep documentation based on the amount donated:
- Donations under $250: A bank or credit card statement suffices.
- Donations of $250 or more: You’ll need a written acknowledgment from the charitable organization.
- Non-cash donations over $5,000: You’ll need an appraisal from a qualified appraiser.
For a contribution to qualify, it must be on the list of qualifying organizations approved by the Internal Revenue System (IRS) and be eligible for deduction. For example, helping a family in need during the holidays won’t generate a tax deduction, but giving to a non-profit organization will.
To learn about qualified organizations, forms required, and other important filing information, visit the IRS here.
5. Defer Income
Deferring income, like an end-of-year bonus or other earnings, can help you reduce taxable income for the current year. If you expect to be in the same or a lower tax bracket next year, consider deferring some income until 2025 to reduce your 2024 tax bill.
This is particularly useful if you’re in a year where your income might push you into a higher tax bracket. This strategy only works if you will be in the same or lower tax bracket in the upcoming year, so make sure you understand the structure before moving funds around.
There are many ways you can prepare for the upcoming tax season, but these are just a few tips to help you get started. If you get lost along the way, or need to seek additional advice, visit the Slavic401k blog for helpful resources and information.
