James J. DeLuca, CPA, MST
Senior Tax Manager
As 2024 draws to a close, it’s crucial for business owners and high net worth individuals to assess their financial situations and make strategic decisions to optimize their tax liabilities. The tax landscape can be complex and constantly evolving, so understanding the key considerations can significantly impact your financial health. Below are essential year-end tax strategies to consider, ensuring you maximize deductions and minimize your tax burden. 
Review Your Business Structure
The structure of your business — whether it’s a sole proprietorship, partnership, S corporation or LLC — affects your tax obligations. As you approach year-end, it’s a good time to reassess whether your current structure is the most tax efficient.
Action Steps:
- Consult a tax professional: Analyze the implications of different business structures, especially if you anticipate significant changes in income or expenses.
- Consider S Corporation status: If you’re an LLC or sole proprietor, switching to an S corporation could offer potential tax savings through reduced self-employment taxes.
Maximize Deductions
Year-end is an excellent time to ensure you’ve taken advantage of all available deductions. Business expenses can be significant, and thorough record-keeping is essential.
Action Steps:
- Track all expenses: Make sure you’re documenting every deductible expense, including operational costs, travel and home office expenses.
- Prepay expenses: If cash flow allows, consider prepaying some expenses (like rent or utilities) for the following year to accelerate deductions.
Take Advantage of Retirement Contributions
Contributing to retirement accounts not only helps secure your future but also reduces taxable income for the current year.
Action Steps:
- Max out contributions: Ensure you contribute the maximum allowable amount to your retirement plans, such as a 401(k) or IRA.
- Consider a SEP IRA or Solo 401(k): If you’re self-employed, these options allow for higher contribution limits and can lead to significant tax savings.
Timing of Income and Expenses
The timing of when you recognize income and expenses can greatly influence your tax situation.
Action Steps:
- Defer income: If you expect to be in a lower tax bracket next year, consider deferring income to the next tax year.
- Accelerate deductions: Conversely, if you anticipate a higher tax bracket next year, accelerate your deductions by paying expenses before year-end.
Capital Gains Management
For wealthy individuals, capital gains can have a substantial impact on tax liabilities. Managing the timing and recognition of these gains is critical.
Action Steps:
- Sell losses: If you have investments that are underperforming, consider selling them to offset gains elsewhere (tax-loss harvesting).
- Hold investments: If you’re expecting significant appreciation, holding onto investments longer can reduce the capital gains tax rate.
Charitable Contributions
Charitable donations can be a strategic way to reduce taxable income while supporting causes you care about.
Action Steps:
- Bunching contributions: For 2024, the standard deduction is $14,600 for individuals and $29,200 for married couples filing jointly. If you itemize deductions, consider bunching charitable contributions to exceed the standard deduction threshold. Contributing to a donor-advised fund, which allows you to receive a tax deduction in the current year while distributing funds to charities over time, can provide a strategic way to bunch contributions and maximize deductions.
- Appreciated assets: Donating appreciated assets like stocks can provide a double benefit – you avoid capital gains taxes while also claiming a charitable deduction based on the asset’s fair market value.
Use of Losses
For both businesses and individuals, understanding how to utilize losses can be a powerful tool for tax planning.
Action Steps:
- Carryforward losses: If your business has had a net operating loss this year, investigate whether you can carry forward the loss to future tax years to offset future income.
- Real estate losses: If you have real estate investments, be aware of passive activity loss rules that might allow for greater deductions.
Review Tax Credits
Tax credits can directly reduce your tax bill and should not be overlooked.
Action Steps:
- Research available credits: Identify tax credits that apply to your situation, such as energy efficiency credits.
- Keep up with changes: Tax laws change frequently, so stay informed about any new credits that could benefit your business or personal tax situation.
Optimize Payroll Taxes
If you have employees, managing payroll taxes effectively can lead to significant savings.
Action Steps:
- Check payroll processing: Ensure your payroll system is up to date with any changes in tax rates or regulations.
- Utilize employee benefits: Consider offering benefits like health savings accounts (HSAs) or flexible spending accounts (FSAs), which can reduce your payroll tax liabilities.
Update Estate Plans
The federal estate tax exclusion for 2024 stands at $13.6 million per individual ($27.2 million for married couples filing jointly).
However, the most critical consideration for estate planning in 2024 is what will happen in 2025 unless Congress and the new president act. Under the Tax Cuts and Jobs Act of 2017, the current exclusion will be cut approximately in half if there is no action by December 31, 2025. If you haven’t revised your estate plan to prepare for this change, the time to do it is now.
Consult with Professionals
Navigating the complexities of tax law requires expertise, especially as regulations evolve.
Action Steps:
- Regular consultations: Schedule regular meetings with your tax advisor to stay on top of your financial situation and any new tax strategies.
- Year-end review: Conduct a comprehensive review of your financials with your advisor to identify last-minute strategies before year-end. Don’t wait until December. Changes in strategy sometimes take time.
Conclusion
Staying proactive with your tax strategy not only helps reduce your tax burden but also sets a solid foundation for your financial future. Contact your G.T. Reilly tax advisor today for a discussion about your year-end tax planning.
