Time for Considering Year-End Tax & Financial Plan Ideas
We all know that year-end tax planning can help lower the tax bills on soon to be filed income tax returns. And while most writers of tax planning articles focus on the time-tested approach of deferring income and accelerating deductions to minimize taxes (guilty as charged), this time I want to present a few unique issues particular to this year or some planning considerations that often are overlooked.
One thing to be aware of is the impending sunsetting of the tax provisions of the Tax Cuts & Jobs Act (TCJA) of 2017. Unless Congress intervenes, after 2025, many of the TCJA provisions, including the lower tax rates, revert to pre-2018 levels. That said, the incoming administration has expressed a desire to extend, if not make permanent, quite a number of the TCJA benefits.
One TCJA change that the president-elect, as well as many legislators on both sides of the aisle, have expressed allowing to revert is the $10,000 annual limit on the state and local tax (or SALT) deduction. Proposals range from raising the limit to a higher amount to eliminating the cap entirely, as used to be the law. If you are someone whose SALT deduction is currently limited, you may want to defer, if possible, making any more SALT payments until 2025. That way, if the SALT cap is raised or eliminated, you will get a tax benefit from the payments in 2025, whereas you would get no benefit if paid in 2024.
Here are a few more important tax and financial planning items to consider going into year-end:
Capital gains and loss harvesting –– Consider tax benefits related to using capital losses to offset realized gains. Think about selling portfolio investments that are underperforming before the end of the year. Net capital losses can offset up to $3,000 of the current year's ordinary income. The unused excess net capital loss can be carried forward to use in subsequent years.
Estate and gift tax planning –– Be sure you are appropriately planning for estate and gift taxes. There is an annual exclusion for gifts ($18,000 per donee in 2024, $36,000 for married couples) to help save on potential future estate taxes. Review lifetime gift and generation skipping transfer (GST) opportunities to use additional exclusions and exemption amounts.
State and local taxes –– Remote working arrangements or moving your residency could potentially have tax implications to consider, including state income, sales and use tax issues. Contact us if this applies to you so that we can assess how this affects your situation.
Education planning –– Save for education with Section 529 education accounts. There can be income tax benefits to do so, and there have been changes in the way these funds can be used. We can help you with any questions.
Updates to financial records –– Consider whether any updates are needed to your insurance policies or beneficiary designations.
Roth IRA conversions –– Evaluate the benefits of converting your traditional IRA to a Roth IRA to lock in lower tax rates on some of your pre-tax retirement accounts.
Estimated tax payments –– With underpayment interest rates currently at 8% for federal taxes, it is a good idea to review withholding and estimated tax payments and assess any liquidity needs. If you have income flowing through from a business, you may benefit from a state's Pass-Through Entity (PTE) provisions. We can help you make this decision.
Life changes –– Think about any major changes in your life such as marriages or divorces, births or deaths in the family, job or employment changes, starting a business and significant expenditures (real estate purchases, college tuition payments, etc.) and how they might affect your taxes. Also, if changes or updates are needed to existing wills and trusts as a result of these life events. Our qualified tax professionals can help you navigate these waters.
Whether it's working toward a tax-optimized retirement or getting answers to your tax and financial planning questions, planning ahead can help you minimize your tax bill, avoid surprises, and position you for greater success. We at EGP are ready to help!
