2024 Year-End Tax Planning for Individuals: Strategies to Maximize Deductions and Credits

As 2024 draws to a close, now is the time to take proactive steps to optimize your tax situation. The right planning can help minimize your tax liability and maximize potential savings. Below, we break down key strategies that every taxpayer should consider before the year ends, ensuring you’re ready to file with confidence in 2025.

1. IRA Charitable Contributions

For individuals aged 70½ and older, Qualified Charitable Distributions (QCDs) offer a tax-efficient way to donate to charity. QCDs allow you to make direct contributions from your IRA to a qualified charity without including the distribution in your Adjusted Gross Income (AGI). Using QCDs can lower your taxable income, which may help you stay in a lower tax bracket, qualify for other tax benefits, or reduce Medicare premiums. This strategy is especially valuable if you do not itemize deductions but want to leverage tax benefits while supporting charitable causes.

To contribute, you will need to arrange for your IRA custodian to send a direct transfer to the charity of your choice. You can contribute up to $100,000 per year in this way, and the amount will count toward satisfying your Required Minimum Distribution (RMD).

2. Charitable Contributions

Unlike the IRA Charitable contributions, this method is a direct donation of cash or non-cash items to qualified charitable organizations. This strategy is relevant if you itemize your deductions on your tax return every year. Cash donations can be deducted up to 60% of your AGI, while non-cash contributions can be deducted at fair market value. Charitable donations reduce your taxable income and allow you to support meaningful causes. They are an excellent way to manage your tax liability while giving back to the community.

Make donations by December 31, 2024, and keep records like receipts or acknowledgment letters from the charity. You can ensure the organization qualifies under IRS rules to take advantage of this deduction using the IRS Tax Exempt Organization Search Tool.

3. Contributing to Health Savings Accounts (HSAs)

HSAs offer a triple tax advantage: contributions are tax-deductible, the funds grow tax-free, and withdrawals for qualified medical expenses are tax-free. In 2024, you can contribute up to $4,150 for individual coverage or $8,300 for family coverage. Individuals 55 and older can contribute an additional $1,000. Contributing to an HSA reduces your taxable income, creates a tax-free pool of funds for future medical expenses, and helps you plan for healthcare costs with a beneficial tax structure.

Make contributions to your HSA before December 31, 2024, to maximize your tax benefits for this year. Check your company’s plan details to ensure contributions are correctly allocated.

4. Flexible Spending Account (FSA) Strategies

FSAs allow employees to set aside pre-tax income to cover eligible medical and dependent care expenses. However, funds in FSAs are subject to a "use it or lose it" rule, which means any unspent amount may be forfeited. Contributing to and maximizing your FSA usage reduces your taxable income while allowing you to manage healthcare or dependent care expenses more effectively. Ensuring you spend down the balance helps you avoid losing money to forfeiture.

Before year end, review your FSA balance and spend remaining funds on eligible expenses before year-end. Some employers offer a grace period or allow you to roll over up to $610 for use in the next plan year. Verify your employer’s specific policy.

5. Boost Your Retirement Savings

Maximizing contributions to your 401(k), IRA, or other retirement accounts can lead to significant tax benefits. In 2024, the contribution limit for 401(k) plans is $23,000, or $30,500 if you’re 50 or older. IRA limits are $7,000, or $8,000 if you’re 50 or older. Contributions to traditional retirement accounts are tax-deductible, reducing your taxable income for the year and boosting your retirement savings. This helps you prepare for the future while benefiting from immediate tax savings.

Increase your payroll contributions or make a one-time contribution before the year ends. While IRA contributions for 2024 can be made up to April 15, 2025, 401(k) contributions must be made by December 31, 2024.

6. Child and Dependent Care Tax Credits

The Child Tax Credit (CTC) allows parents to claim up to $2,000 per qualifying child under 17. The Dependent Care Credit offers a credit for a percentage of qualifying childcare expenses, up to $3,000 for one child or $6,000 for two or more children. Tax credits directly reduce your tax liability dollar for dollar, making them more valuable than deductions. Leveraging these credits can significantly reduce your tax bill, especially for families with young children.

Keep accurate records and receipts for all qualifying childcare expenses. Make sure to request the EIN or SSN of the qualified childcare business/person for tax purposes. When it is time to file your tax return, let your preparer know you have qualified childcare expenses.

7. Energy Efficiency Home Improvements

The Residential Clean Energy Credit and the Energy Efficient Home Improvement Credit provide tax benefits for homeowners who make energy-saving upgrades. The Residential Clean Energy Credit covers 30% of the cost of eligible installations like solar panels. This strategy not only lowers your tax liability but also promotes long-term energy savings and may increase the value of your home.

Make sure to retain all receipts and documentation related to energy-efficient home improvements made during the year. When it is time to file your tax return, let your preparer know that you have made energy efficient home improvements.

Year-end tax planning can lead to significant savings if executed thoughtfully. Implementing these strategies can lower your tax bill, make the most of available deductions and credits, and set you up for a successful financial year ahead. As always, consult with a tax professional to tailor these strategies to your specific situation and ensure compliance with all IRS guidelines.

This article is only a summary of the many tax strategies for individuals. If you need assistance in preparing your US tax return and analyzing your potential tax situation please contact us a info@mkhstaxgroup.com.