Tax season is a month away. Review your year-end tax checklist to prepare

You may be drinking eggs right now and curling up by the fire, but before you know it you’ll be gone Tax time It will be upon us. The end of the year is an excellent time to check your taxes in preparation for filing 2024 tax returnEspecially if you expect your financial situation to change significantly in 2025.

Some tax strategies can reduce your tax burden and help you get a larger tax refund, but you need to take action soon, as some steps require preparation to be completed before December 31, 2024.

Read more: Watch out for this tax change if you earn money from Venmo, Cash App, or Paypal this year

It pays to take the time now to review your tax situation, as a little effort now can pay off big time later. Read on to find year-end tax tips to prepare you for the upcoming tax season.

1. Double-check your paycheck to make sure taxes are deducted

The United States has a “pay as you go” model of income tax, which is why your employer will withhold money from your paycheck and Freelancers are required to pay estimated taxes quarterly. Failure to pay enough taxes during the year can result in a penalty at tax time.

Your employer determines the amount withheld from your paycheck through your W-4 tax form, which includes your filing status and estimated tax deductions. The end of the year is a good time to Review your W-4 and current withholding To decide if you want to change it.

IRS Tax withholding estimator tool Allows you to estimate current withholding and expected tax refund to adjust your W-4 form. You can provide an update Form W-4 to your company at any time, and your employer must make your changes by the beginning of your first payroll period, which is 30 days or more after you file your W-4.

2. Sell any losing stocks to offset your capital gains

It’s been a big year for stocks in 2024 — the S&P 500 is up a whopping 30% — but there are still plenty of stocks that lost money this year. One bright spot for potential stock losses is the opportunity to exercise “Tax loss harvesting“.

This tax strategy works by realizing losses or selling stocks and assets that have lost value, to offset other capital gains you may have earned. For example, if you make a $25,000 profit on the sale of a property in 2024 but lose a lot on an investment in a distressed stock (e.g. Intel), you can sell your securities and subtract the financial loss of that investment from your capital gain. If you had $25,000 in stock losses, you would offset the $25,000 you gained from selling real estate to eliminate that tax burden.

Capital gains include any income you earn by selling assets, such as stocks, real estate, cars, furnishings, or other tangible property, but you must actually sell the assets to realize losses and offset gains.

3. Maximize contributions to retirement accounts

Pension funds such as 401(k) accounts. IRA accounts provide one of the most productive tax deductions because you can reduce your tax bill while building a nest egg for the future. If you can afford it, increase your potential contributions to any retirement account before the end of the year.

the Deduction limit for 401(k) contributions. For 2024 taxes it is $23,000, which is the case no Calculate employer contributions. A worker in the 24% tax bracket can cut nearly $5,000 off their tax bill just by saving money for the future. Increase the percentage of your regular 401(k) contribution for the final pay period of 2024 to make the most of potential retirement deductions.

If you’re over 50, you can contribute more to your 401(k) plan “Catch-up” contributions. Totaling $7,500 per year (or $30,000 total) in 2024, if Allowed under your 401(k) plan. You don’t even need to be “delinquent” on your 401(k) contributions to make additional deferrals to your account.

For IRAs, the maximum amount of tax-deductible contributions for 2024 is $7,000, or $8,000 if you’re over 50. The amount of money you can deduct from your taxes depends on your income and whether or not you have a work advance retirement plan.

4. Make your home more energy efficient

Thanks for Inflation reduction law of 2022there are big incentives to make your home “greener” in 2024. The law boosted the amount of tax breaks you can get for increasing the energy efficiency of your home. For this tax year, Residential Clean Energy Credit — which returns the money needed to install solar panels, ground-based heat pumps, fuel cells and battery storage — remains at 30%.

Tax credits have a bigger impact on your tax bill than deductions. Deductions lower the level of taxable income, and tax credits directly reduce the amount of taxes you owe to the IRS.

Installing a solar energy system, wind turbine, or geothermal heat pump can now set you back 30% of the cost if completed before January 1, 2025. In California, Average cost of installing solar energy It is $11,563. If you make this average improvement to your home in 2024, you’ll deduct $3,467 in taxes.

Energy improvement tax credits are not limited to alternative energy. Simply install New and qualified Energy Star certified furnaces and boilers It can get tax breaks as well, although they are smaller than alternative energy. Be sure to check the manufacturer’s tax certification statement, as not every Energy Star certified product qualifies.

5. Can you defer a year-end bonus or payment?

It’s not always easy to defer payment from your employer, but if you’re receiving a year-end bonus and are looking to reduce your taxable income as much as possible this year, consider asking your company to pay you in January.

Likewise, if you’re a freelancer or contractor and want to reduce your taxable income for 2024, consider delaying your bills until December so you don’t get paid until January. You’re just deferring paying income taxes on that money until your 2025 taxes are due, so you’ll need to strategize on whether this year or next will be better for earning that money.

6. Donate to charity now if you want more tax deductions

If you itemize your tax deductions and want to contribute financially to the causes and groups you support, do so before the end of the year to best minimize your taxable income for 2024. Most taxpayers generally can Charitable donation deduction Up to 50% of their taxable income.

Before donating, make sure your contribution will be tax deductible by researching IRS Tax Exempt Organization Database. All valid charities and non-profits will also have a tax identification number that identifies them as tax-exempt.

7. Check required minimum distributions from IRA and 401(k) accounts.

U.S. tax law requires that Americans begin receiving distributions from personal retirement accounts or business-added accounts when they reach a certain age. Starting in 2023, the SECURE 2.0 Act raises this age from 72 to 73, for those who turn 72 after December 31, 2022.

These distributions are mandatory for 401(k) plans, traditional IRAs, profit-sharing plans and pensions. They are no Required for Roth IRAs while the owner is alive.

Required minimum distributions, or RMDs, are calculated by adding up all the money in your retirement accounts and dividing it by the IRS’s life expectancy factor. The Securities and Exchange Commission provides a Simple calculator Includes the latest IRS life expectancy tables.

Your retirement plan administrator must follow the tax code for RMDs, and it’s up to you to make sure you get the right amount. If you do not meet the required amount for your RMD, you will face The harshest IRS penalty around. The indirect tax on risk management system failure was 50% in the past, but the SECURE 2.0 Act reduces this penalty to 25%, and even to 10% if the risk management system is corrected within two years.

However, if you are required to withdraw $20,000 in 2024 but only receive $10,000, you could be hit with a $2,500 penalty. It’s definitely worth double-checking your RMD for 2024 and withdrawing more money if necessary.

8. Add up your medical expenses in one year

Medical expenses can be a significant deduction for many taxpayers, but the IRS only allows you to deduct expenses that are more than 7.5% of your gross gross income. For example, if your average gross income is $50,000, and you spend $5,000 on medical expenses, you can deduct $1,250 ($5,000 – (50,000 x 7.5%)) from your taxable income.

For this reason, it may be helpful to aggregate all of your major medical expenses into one year. These expenses can include surgeries, preventive care, hospital visits, dental care, prescription medications, glasses, hearing aids, and mental health care such as therapy, as well as transportation costs to and from providers.

If you’re approaching 7.5% of your total medical expenses in medical expenses this year, consider making as many of your anticipated health-related purchases as possible by the end of December. Get your teeth straightened, buy those new glasses or schedule elective surgery by the end of 2024, and you’ll get maximum medical discounts.

Likewise, if you don’t get close to the 7.5% AGI threshold for medical expenses in 2024, postpone any non-urgent health-related purchases until January when they could be more beneficial for income taxes next year.

9. Strategize your business expenses

If you are self-employed or a freelancer, Deduct your business expenses It can save you big money on taxes. Depending on how much you’ve already spent on your professional business this year, you might consider prepaying for next year’s expenses before the end of 2024 to reduce your tax burden.

For example, instead of purchasing supplies one month at a time, you can order and pay in December 2024 for supplies that you will use for several months in 2025. The timing of your deductions may depend on whether you use the cash or accrual basis method of accounting, but business expenses that Front-loading for next year is a time-tested method of reducing your taxable income for the current year.

It is very important to note that everyone’s tax situation is different. These year-end tax tips may be effective for you, but there is no “one-size-fits-all” approach to tax preparation. Be sure to consult a tax professional before making any major tax decisions.

To learn more about the 2024 tax season, see How will the standard deduction and income brackets change in 2025?.