On individual tax planning, look at the overall impact on 2024 and 2025. The end game is to cut your tax bill over both years. And because the provisions affecting individuals in the 2017 tax law don’t expire until after 2025, you can expect that the income tax rates and deductions for 2025 will be similar to those for 2024. Any big tax changes that Congress passes next year will likely first take effect in 2026.
Most taxpayers will benefit taxwise by accelerating write-offs from 2025 into 2024 while deferring taxable income. Others should consider the opposite approach. Itemizers who claim charitable deductions have flexibility in shifting write-offs. Bunch into 2024 charitable gifts you would usually give over multiple years.
Give to a donor-advised fund to help maximize your charitable write-off.
Contribute appreciated property, such as stocks or shares in mutual funds. If you’ve owned the property for more than a year, you can deduct its full value in most cases if you itemize. Neither you nor the charity pays tax on the appreciation. Don’t donate assets that have dropped in value. If you do, the loss is wasted.
Beware of this rule if you plan to donate a significant amount to charity:
Cash contributions are deductible only to the extent total write-offs don’t exceed 60% of your adjusted gross income. The AGI limit for donations of capital-gain property is generally 30%. Any excess contributions can be carried forward for five years.
Keep good records if you volunteer for charity. You can deduct 14¢ per mile for charitable driving. Other expenses incurred for charitable work are also deductible.
Itemizers should also consider incurring more medical costs before year-end if your medicals have topped or are near the 7.5% of adjusted-gross-income threshold. Check out IRS Publication 502. The list of eligible medicals is broader than you think. It includes glasses and hearing aids, health insurance, the unreimbursed costs of long-term care and many home improvements to accommodate a disability or illness.
Some filers can work the standard deduction by switching in and out between it and itemized deductions to maximize overall tax deductions for two years. If 2024 itemizations won’t hit the standard deduction amount, delay incurring them and bunch them into 2025. If your itemizations are just over the standard deduction, accelerate some to this year and itemize, and then take the standard deduction in 2025. The 2024 standard deduction is $29,200 for couples (and $1,550 per spouse 65 and up), $14,600 for singles (plus $1,950) and $21,900 for household heads (plus $1,950). 2025 figures are $30,000, $15,000 and $22,500 (plus $1,600 or $2,000 if 65 and up).
If you have Medicare, consider how taxes could affect the premiums you pay. Joint filers with modified AGIs exceeding $206,000 and singles with over $103,000 of modified AGI pay higher premiums for coverage in 2024. Premiums for 2026 will be based on modified AGIs reported on your 2024 tax returns. Consider how any tax moves you make now could push your premiums up or down in 2026.
Tax loss harvesting is a way investors can lower their tax bills. The strategy involves selling stocks or other securities in your taxable investment accounts that have declined in value for the purpose of generating capital losses to offset gains from the sale of winners. Investors commonly do this closer to the end of the year, when they have a better idea of the amount of capital gains they will have. Capital losses can offset capital gains plus up to $3,000 of other income.
Excess losses are carried over to the next year and can help offset future gains.
Beware of the wash-sale rule. It prohibits a capital loss write-off on the sale of securities if you purchase substantially identical securities up to 30 days before or after the sale. The recognized loss isn’t gone forever; it’s only suspended. That’s because the loss is added to the tax basis of your replacement securities. People who sell cryptocurrency at a loss needn’t worry about the wash-sale rule. If you have capital loss carryforwards, cull your portfolio for gains.
That’s because your net gains…up to the carryover amount…won’t be taxed at all.
Review whether your stock mutual funds frequently buy or sell holdings. These funds can potentially generate big short-term capital gain distributions, which are taxed at ordinary income rates instead of as long-term capital gains. Before you invest in a mutual fund, check its turnover ratio. The higher the ratio, the higher the potential for tax-inefficient short-term capital gains distributions.
Heed the required minimum distribution rules for traditional IRAs. People 73 and older must take annual payouts.
Max out your 2024 401(k) and IRA contributions. You have until Dec. 31 to put money in 401(k)s and other workplace retirement plans, and until April 15, 2025, to contribute to an IRA for 2024. You can stash up to $23,000 in a 401(k)…$30,500 if age 50 or up. The 2024 payin cap for IRAs is $7,000, plus $1,000 more if 50 or older. If you’re 60, the catchup provision rises to $13,500.
Businesses can save on taxes with first-year 60% bonus depreciation. Firms can deduct 60% of the cost of new and used qualifying business assets, with lives of 20 years or less, that they buy and place in service by Dec. 31, 2024. Or use expensing. In 2024, up to $1,220,000 of new or used business assets can be expensed. The amount expensed can’t exceed the business’s taxable income. Buyers of business vehicles get tax breaks in 2024. New and used cars: With bonus depreciation, the first-year cap is $20,400. Second- and third-year caps are $19,800 and $11,900. Absent bonus depreciation, the first-year cap is $12,400. Heavy SUVs: You can expense up to $30,500 of the cost. 60% of the balance gets bonus depreciation, and the rest may qualify for regular five-year depreciation.
Big pickup trucks: You can expense up to 100% of the cost used in business, subject to the rule that total expensing can’t exceed taxable income from the business.