Tax Season Prep: Key Moves to Make Before Filing Your 2024 Taxes
Tax season is here, and while it may not be the most exciting time of year, a little proactive planning can help you keep more of what you’ve earned. Before you file your 2024 taxes, take time to review key opportunities that could reduce your tax burden and position you for long-term financial success.
1. Max Out Tax-Advantaged Contributions
If you haven’t yet maxed out contributions to your retirement accounts, you may still have time. For 2024, the contribution limits are:
Retirement plans: Invesco does a nice job summarizing limits and deadlines here.
Traditional and Roth IRAs: $7,000 ($8,000 if age 50+) contributions can be made until April 15, 2025
Health Savings Accounts (HSAs): $4,150 for individuals, $8,300 for families ($1,000 catch-up for those 55+)
Contributions to traditional IRAs and HSAs may be tax-deductible, reducing your taxable income for 2024.
2. Review Potential Tax Deductions and Credits
A tax deduction reduces your taxable income, while a tax credit directly reduces the amount you owe. Tax credits and deductions can provide substantial savings for individuals and businesses alike. From education expenses and childcare costs to energy-efficient home improvements and charitable donations, there are numerous credits and deductions available to taxpayers. For instance, the Child Tax Credit has been expanded for 2024, offering significant relief for families with dependent children. Additionally, businesses can take advantage of deductions for qualified business expenses, research and development activities, and employee benefits. However, navigating the eligibility criteria and documentation requirements for these tax breaks can be complex. Working closely with a certified public accountant (CPA) can help ensure that you're maximizing your potential tax savings while remaining compliant with IRS regulations.
3. Take Advantage of Tax-Loss Harvesting
If you realized capital gains in 2024, reviewing your portfolio for tax-loss harvesting opportunities before year-end may have helped offset those gains. However, if you missed this opportunity, you can still be strategic about capital gains and losses when making investment moves in early 2025. Do not wait until the end of the year to look for these opportunities. Always be ready to take advantage of situations like these but be careful not to run afoul of wash sale rules.
4. Consider a Backdoor Roth IRA Contribution
If your income exceeds Roth IRA contribution limits, you may still be able to contribute through a Backdoor Roth IRA. This strategy involves making a nondeductible contribution to a traditional IRA and then converting it to a Roth IRA. Be mindful of the pro-rata rule, which impacts how conversions are taxed. It is also important to know when you are going to use this money so if you anticipate needing it in the next 5 years you may want to use a taxable account instead.
5. Organize Your Tax Documents
Start gathering the essential documents you’ll need to file:
W-2s and 1099s (income documentation)
Form 1098 (mortgage interest statement)
Form 5498 (IRA contributions)
Receipts for deductible expenses
Organizing these early can help avoid the last-minute scramble and potential filing errors. If you use an accountant to help you file they will also thank you for being prepared early.
6. Explore Charitable Giving Strategies
If you made charitable donations in 2024, ensure you have the proper documentation to claim deductions. A donor-advised fund (DAF) is another option to reduce taxes but those DAF accounts need to be funded before the end of the tax year.
7. Double-Check Estimated Tax Payments
If you're self-employed or receive significant non-W-2 income, ensure your estimated tax payments align with IRS requirements to avoid penalties. The final 2024 estimated tax payment was due January 15, 2025, but if you missed it, making a catch-up payment when filing may help reduce penalties.
8. Plan for 2025 Now
Looking ahead, consider adjusting your tax withholding or estimated payments if you had a significant tax bill or refund this year. Small adjustments now can prevent surprises next April. Check out this IRS Tax Withholding Estimator to plan for your withholdings and potentially avoid any tax surprises at year end.
Taking a proactive approach to tax season can help you avoid stress and uncover potential savings. If you’re unsure about any of these strategies, consulting a tax professional or financial planner can ensure you're making the best moves for your situation.
At Cascade Wealth Planning, we help our clients integrate tax-smart strategies into their overall financial plan. If you’d like to discuss ways to optimize your taxes for 2025 and beyond, we’d love to chat.
Ready to make the most of your financial future? Contact us today
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