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Year-End Tax Strategies

By Michael Nedreski

With 2024 coming to a close, it's the perfect time to tie up any loose ends and prepare for a fresh start in the new year. One important task on your list should be addressing your taxes. While taxes may not feel particularly festive, a little proactive planning now can lead to significant savings later—something worth celebrating! Here are a few year-end tax strategies to consider.

Harvest Your Tax Losses

The IRS allows investors to offset their capital gains with similar capital losses. If you happen to be holding a losing investment, now might be a good time to sell it so you can use the loss to offset your capital gains for this year and therefore lower this year's tax bill.

Give to Charities

Contributing to charity can lower your tax bill if you itemize your deductions. And it doesn't have to be just money that you donate. Clean out your closet and kitchen cabinets and take a box over to your local 501(c)(3) thrift store. As long as they give you a receipt for the donation, you will be able to itemize and deduct whatever the fair market value is for the items.

If you have appreciated stock, you can get an even greater benefit by donating it to charity. You get to deduct the fair market value of the stock as a charitable contribution and the charity is not liable for the capital gains. 

Open a Donor-Advised Fund

With the new, higher standard deduction created by the Tax Cuts and Jobs Act, many of those who are charitably inclined are considering donor-advised funds. Donor-advised funds work as charitable giving savings accounts where you get a deduction when you put the money into the fund, not when you distribute it to a charity. 

If your itemized deductions are close to the standard deduction, you can open a donor-advised fund and put a large sum of money into it in 2024. You get to take the tax deduction for this year but hand the money to charities over time. Then, in 2025, you may not have deductions for your charitable giving, but you can still take the standard deduction. (1)

Take Your Required Minimum Distribution

You are required to take minimum distributions from your retirement accounts (except Roth IRAs) by April 1st the year following your 73rd birthday. After that, the money must come out of your account by December 31. 

Max Out Your Retirement Account

Another way to lower your income, and therefore your tax bill, is by deferring that income until retirement. In 2024, you can contribute up to $23,000 to a 401(k) plan, which will remove that money from your current taxable income. If you are 50 or older, your yearly contribution limit goes up to $30,500. You can put up to $7,000 in any type of IRA; $8,000 if you are over age 50.

Convert Your IRA

If you have lower income than normal in 2024, then it might make sense to convert your traditional IRA to a Roth. In doing so, you would pay the income taxes on the money now, at your 2024 rates, so that you could take all withdrawals tax-free in retirement.

Another benefit of having your money in a Roth account is that it is not subject to required minimum distributions as discussed above. Once your money is in a Roth IRA, you can leave it in there to grow as long as you'd like. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. 

Take Advantage of Your HSA

If you have access to a health savings account (HSA) with your high-deductible health plan, you can enjoy triple-tax savings with no federal income tax, no state or local taxes, and no Federal Insurance Contribution Act (FICA) taxes. Your contributions are tax-deferred and withdrawals are tax-free for medical expenses. 

Since your balances roll over from year to year, you can max out the account without worrying about using it up right away. For 2024, the contribution limit (2) is $4,150 for an individual and $8,300 for a family, with a $1,000 catch-up bonus for those over 55.

Prepay Tuition

If you have a college student, consider paying next term's tuition before December 31. Any tuition you pay for the first four years of undergraduate study is eligible for the American Opportunity Tax Credit. (3) This can save you up to $2,500 per student on your tax bill depending on your expenses and income. If you are the one doing the studying, you may be eligible for the Lifelong Learning Credit. (4)

Contribute to a 529 Plan

If you're still working on saving for your children's college education, then you may benefit from putting some money into a 529 plan before the year's end. This won't help with your federal tax bill, but it might lower your state taxes. Many states allow deductions for contributions to the state's 529 plan, and some even allow them for contributions to other plans. 

Prior to investing in a 529 plan, investors should consider whether the investors or designated beneficiary's home state offers any state tax or other state benefits, such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax-free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing. (19-LPL). 

Get in Touch for Support

While enjoying the holiday season, the final weeks of the year are the perfect opportunity to take smart financial steps. If you'd like assistance with these strategies or want to explore how we support our clients, contact us by calling 814-835-4551, emailing MICHAEL.NEDRESKI@LPL.COM, or scheduling an appointment here.

Specific individualized tax advice not provided. We suggest that you discuss your specific situation with a qualified tax advisor. 

About Michael

Michael Nedreski is managing partner at White Oak Wealth Partners, a specialized financial lifestyle and wealth management firm serving entrepreneurs, business owners, executives, and their families. Mike has 30-plus years of experience in the financial services industry and is committed to serving his clients through holistic financial planning, disciplined investment strategies, and proactive personal service.

A native of Erie, Pennsylvania, Mike began his career in the financial services industry in 1988. He has earned the Chartered Retirement Planning CounselorSM (CRPC®) designation conferred by College for Financial Planning (188-LPL). Mike is also an active member of the Financial Services Institute (FSI) and Financial Planning Association (FPA).

When not working, Mike enjoys spending time with his wife, Amy, and their children. He volunteers in his community and at his church and his children's schools. An outdoors enthusiast, Mike loves hunting, fishing, golfing, and spending time near or on the water. He also enjoys working out and watching some of his favorite sports teams, the Pittsburgh Pirates and the Cleveland Browns. To learn more about Michael, connect with him on LinkedIn.

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(1) While donor-advised funds have many advantages, some disadvantages to be aware of include but are not limited to possible account minimums, strict limits on grant allocations, management fees, and the potential that future tax laws may change at any time that may impact the tax treatment and benefits of donor-advised funds. 

(2) USA Today, 2024, June 3

(3) IRS, 2024, December 4

(4) IRS, 2024, December 5