While tax planning shouldn’t only be a once-a-year activity, the end of the year is one of the ideal times to review your finances and undergo effective tax planning to prepare for the upcoming year and find any available savings based on your financial situation.
Check out our end-of-year tax tips 2024 to help you understand your finances, maximize any tax advantages, and develop effective tax planning.
Why Year-End Tax Planning is Important
Maximizing Deductions and Credits
Looking at your finances at the end of each year allows you to identify any available deductions and credits and maximize them by adjusting your strategy to reduce taxable income. These deductions could include anything from charitable donations to business expenses and retirement contributions.
Preparing for Changes in Tax Law
Tax regulations often change yearly, so keeping up with these changes is crucial to maintaining full compliance with the current laws. Use the end of the year to review the latest regulations and adjust your tax planning based on the changes.
Essential End-of-Year Tax Tips
1. Review Your Financial Situation
A financial review is a crucial step for everyone as it allows you to examine your current financial standing and optimize your finances to align with your current and future objectives.
Reviewing your financial situation also allows you to maximize any tax benefits you may have, potentially save money, and prevent any mishaps that wouldn’t otherwise be identified without a financial review.
2. Maximize Retirement Contributions
Contributing to a retirement plan such as a 401(k), 403(b), or IRA can reduce your taxable income. Maximizing this contribution before the year ends gives you an immediate tax advantage and more investment to secure your financial future.
For 2024, the contribution limit has increased to $23,000 for a 401(k) and $7000 for an IRA.
3. Consider Charitable Contributions
Contribution to charities is another one of the good end-of-year tax tips, as it can provide a significant tax advantage. These contributions can be cash, goods, or securities. For cash, the deductible can be up to 60% of your Adjusted Gross Income (AGI). Non-cash gifts, such as stocks (held over a year), are deductible up to 30% of AGI.
4. Make Use of Flexible Spending Accounts (FSAs)
FSAs are special accounts that allow you to set aside money from your paycheck to pay for medical expenses. This money is not taxable, so you can save enough to cover the taxes you would have paid on the money you set aside.
Note that this FSA money must be used before the year ends; otherwise, it wouldn’t be deductible.
5. Review Business Expenses
If you’re a business owner, there are many deductibles you can take advantage of before the year ends. Review all your business expenses and see which ones are eligible for deductions.
For instance, business expenses like office supplies and equipment, work travel, and other business costs are deductible. Moreover, make any necessary purchases before the year ends so you can maximize the deductions before they expire.
Other Considerations for Year-End Tax Planning
Stay Informed About Local and State Tax Changes
One of the most crucial end-of-year tax tips is to stay updated with the latest tax regulations. By staying informed about local and state tax changes, you avoid missing important details about your tax obligations, which can land you in many tax issues.
Consider Changes in Your Personal Life
If you experience changes in your personal life, such as getting married or having a child, note that this will impact your filing status and deductions. For example, when you get married, you’ll have a different tax bracket. Understand these changes and adjust your tax planning accordingly.
Common Mistakes to Avoid
Procrastination
When it comes to taxes, time is of the essence. There are deadlines everywhere, and if you fail to follow through, you miss out on the advantage it can provide you, or worse, incur penalties and hefty fines. That’s why acting fast and doing due diligence are crucial for effective tax planning and better results. Don’t wait until it’s too late–Get your documentation ready and file your taxes effectively.
Neglecting Documentation
A major part of tax planning is meeting requirements, which often means having the right documentation. Failing to provide the right documentation can lead to missed opportunities such as deductions and credits and complicate your tax situation. Have all your documents organized to support your tax filing and prevent issues.
Ignoring Professional Help
Professional help is the most effective solution to all tax-related matters. Whether you need advice, understand the regulations, organize documentation, respond to requests, or negotiate with the IRS, a tax attorney is your best bet to get you the best outcome. If you have difficulty handling your taxes, contact your trusted tax attorney for assistance.
End Note
Regularly reviewing your finances and tax obligations is crucial for spotting opportunities, maximizing them, and identifying potential problems before they escalate. Our end-of-year tax tips require focus, time, and effort, but they can greatly improve your financial outcomes.
Work closely with a tax attorney to help understand what benefits you can get from your tax situation and strategize the best steps to maximize those tax advantages.
At Greenberg Law Group, P.A., we’re here to guide you through every aspect of tax planning. Reach out to us for expert assistance in optimizing your tax situation.
