As October approaches, now is a prime time to review your 2024 tax strategy. With potential tax law changes tied to the upcoming presidential election, this year is especially crucial for fine-tuning your approach to reducing tax liabilities, according to insights published by BNY Mellon Wealth Management.   

1 Strategies for minimizing income tax

As tax landscapes evolve, savvy investors can leverage income timing strategies to minimize their tax burden. Consider these approaches:  

1. Accelerating Income into 2024 – Rationale: Capitalize on current tax rates before potential increases in 2025 • Methods: 

• Exercise stock options
• Realize deferred compensation 

2. Deferring Income for High Earners – Goal: Minimize Net Investment Income Tax (NIIT) • NIIT details:  

• 3.8% tax on net investment income
• Applies when Modified Adjusted Gross Income (MAGI) exceeds $200,000 for single filers • Strategy: Defer investment income to avoid triggering the NIIT threshold  

3. Asset Sale Considerations – BNY Mellon’s recommendation: Elect out of installment basis for income collection • Installment method explained:  

• The seller receives payments over time instead of a lump sum.
• At least one payment occurs after the sale’s tax year •. Caution: The installment method could increase taxes if rates rise in future years. 

Capital Gains Tax Breaks – If you or your family members have realized long-term capital gains, it’s worth reviewing the current tax brackets to determine if you may qualify for a 0% or 15% tax rate on them.    

Key Takeaway: Consider your current and projected future tax situations when deciding whether to accelerate or defer Income. These strategies can significantly impact your overall tax liability. Tax planning is complex and highly individual. Consult a qualified tax professional to tailor these strategies to your financial situation.

2 Optimizing Your Portfolio for Tax Efficiency

As the year draws to a close, it’s crucial to consider the tax implications of your investment portfolio. One effective strategy for minimizing capital gains taxes on tradable securities like stocks, bonds, and ETFs is tax-loss harvesting. This method involves selling assets at a loss to offset capital gains from other investments. 

Moreover, if your losses exceed your gains, you can use the difference to reduce up to $3,000 of personal income. Investors should liquidate their losses before the December 31 deadline to leverage this strategy. However, it is essential to be mindful of the wash-sale rule when employing tax-loss harvesting. 

This rule prohibits investors from selling a security at a loss and repurchasing the same or a substantially identical investment within 30 days of the sale. If you wish to recognize a capital loss while maintaining exposure to a particular security, consider making an additional purchase more than 30 days before selling at a loss. 

As 2024 ends, keep this 30-day timeframe in mind to ensure compliance with the wash-sale rule and maximize the benefits of your tax-loss harvesting strategy. By carefully balancing these considerations, you can effectively rebalance your portfolio while optimizing your tax position for the year.

3 Maximize Annual Gifting Opportunities in 2024 

The 2024 annual gift exclusion offers a valuable opportunity to transfer wealth to future generations or make tax-free contributions on behalf of others.

You can give up to $18,000 per recipient without incurring gift tax by taking advantage of this exclusion. This amount does not count towards your lifetime gifting exemption, providing additional flexibility for your estate planning strategies.

Consider These Strategies:

Estate Planning: Utilize annual gifting to reduce your taxable estate and potentially lower future estate taxes.

Funding Education or Medical Expenses: Directly pay educational or medical expenses for beneficiaries to avoid gift tax implications.

Supporting Family Members: Provide financial assistance to family members without triggering gift tax consequences.

4 Maximizing Retirement Savings: Key Considerations  

The BNY Mellon whitepaper recommends taking proactive steps to maximize retirement savings. This includes contributing the maximum amount allowed to retirement accounts such as 401(k)s, traditional IRAs, Roth IRAs, and other eligible plans. Given the potential for future legislative changes, it’s advisable to contribute as much as possible this year.

Additional Tips for Retirement Savers:

• Catch-Up Contributions: Individuals over 50 can make additional catch-up contributions to their Roth IRAs. This year, the limit is $8,000, up from $7,000.
• Roth IRA Conversions: Consider converting a traditional IRA to a Roth IRA. While this may trigger immediate income tax, future withdrawals from a Roth IRA are generally tax-free. This is particularly beneficial if you anticipate higher future tax rates.
• Required Minimum Distributions (RMDs): Ensure you take the necessary RMDs from your retirement accounts. Failure to do so can result in a 25% penalty. Review your RMD requirements carefully to avoid penalties.

By following these strategies and staying informed about retirement planning best practices, you can work towards achieving your financial goals and enjoying a comfortable retirement.

5 Estate Planning Strategies for 2024-2025

As we approach year-end, reviewing and updating your estate plan is crucial. Consider these key actions:

1. Document Review • Update wills, trusts, and other estate planning documents • Reflect changes in personal and financial situations from 2024 and anticipated for 2025
2. Leverage Current Tax Exemptions • Utilize the $13.61 million individual ($27.22 million for couples) federal estate, gift, and generation-skipping transfer tax (GSTT) exemption • Act before a potential reduction in 2026 or through new legislation
3. Strategic Wealth Transfer • For married couples: Consider using one spouse’s full exemption to preserve the other’s for future use • Implement techniques like Spousal Lifetime Access Trusts (SLATs), Dynasty Trusts, or Irrevocable Life Insurance Trusts (ILITs)
4. Adapt to Higher Interest Rates • Explore strategies such as Qualified Personal Residence Trusts (QPRTs) or Charitable Remainder Trusts (CRTs)
5. Optimize Generation-Skipping Tax Planning • Allocate increased exemptions to trusts not fully exempt from generation-skipping tax • Act before potential exemption reductions

Remember: Estate planning is complex and highly individual. Consult with legal and financial professionals to tailor these strategies to your specific situation and ensure compliance with current laws.

Conclusion

As 2024 draws to a close, it’s a great time to review your wealth plan to ensure it aligns with any changes in your personal goals, financial circumstances, the economic landscape, and current tax laws. Explore the checklist below for potential strategies, and consult with a qualified tax advisor or CPA firm to implement actions before the December 31 deadline. If you have any questions feel free to reach out to Huckabee CPA for a consultation.