Like gardening or working out, tax planning is one of those activities where you get out what you put in. Plenty of us have a weight bench gathering dust in the garage that hasn’t gotten us into any better shape, or a plot in the backyard that just won’t grow anything because we never weed it. Tax planning is similar in the sense that you can put work in on the front end that you’ll reap benefits from later.
Many of us just do tax preparation, dropping off a shoebox of documents with a CPA for the weekend. Then we’re surprised when our returns are only so-so. Tax planning, not just tax prep, is an intentional act that can reduce your tax footprint and optimize your tax picture.
Let’s look at those lingering tax checkboxes for this tax season and see how you can optimize your tax plan for return time.
Minimum Standard Deduction or Itemizing?
This initial question may help you put together the rest of your tax planning strategies. Planning has changed a lot since the Tax Cuts and Jobs Act nearly doubled the minimum standard deduction to $14,600 for single filers and $29,200 for married-filing-jointly (for 2024).
Getting your itemized deductions above that threshold no longer applies to a large part of the population and could affect your overall tax strategy. Some estimates say only 11% of Americans itemize their tax returns. That said, it’s within your interest to reduce your taxable income no matter whether you utilize the standard deduction or itemize.
There Are Still Ways to Help Optimize Your Taxes
It’s important to remember that we’re still in the tax planning season. If you haven’t hit the ceiling for the accounts below, there’s time to contribute, which can lower your taxable income for 2024:
Until April 15
- IRA – $7,000 contribution limit; $1,000 catch-up contribution if over 50
- Health Savings Account (HSA) – $4,150 single, $8,300 married contribution limit; $1,000 catch-up contribution if over 55
Until October 15 (if you file an extension)
- Solo 401(k) – $23,000 contribution limit; $7,500 catch-up contribution if over 50
- SEP IRA – 25% of employee’s compensation or $69,000 contribution limit
- Simple IRA – $16,000 contribution limit; $3,500 catch-up contribution if over 50
These are the kind of tax moves that take you from simple tax preparation to tax planning.
2024 Items to Mention to Your CPA
2024 is over, and while there are some tax items with more flexible deadlines as we just mentioned, the ball drop at midnight Dec. 31st generally marks a hard stop. Let’s look at the items that were part of your financial life last year and that you want to make sure your CPA knows about when prep time comes.
Charitable Giving
The deadline for charitable giving ends when the year ends, but you want to make sure you’ve reported clearly to your CPA what you gave last year.
· Qualified Charitable Distributions (QCDs) – Your distributions from your retirement plans are reported on your 1099-R form, but the form doesn’t specify how much went to a QCD. You need to discuss this directly with your CPA to make sure that whatever portion of your distributions went to charity isn’t reported as taxable income. The responsibility is on you to make sure that’s clear with your CPA.
· Giving to Your Church or Faith Community – Your worship community (church, synagogue, mosque or other organization) should send you an annual statement for your giving in 2024 to prepare you for tax time. If they haven’t, they will most likely have this on file and can send you a contribution letter. However, it’s worth noting that there is no law requiring that they send you a record of your contributions. Although it is decidedly a best practice, it’s not legally binding. It is ultimately the donor’s responsibility if you want to keep a record and itemize.
Other Items
Again, given the standard deduction, many aren’t itemizing anymore. But if you are, there are some items you don’t want to forget in your tax planning strategy.
· Medical Expenses – If you’re itemizing, anything above 7.5% of your adjusted gross income (AGI) can be deductible.
· Mortgage Interest – This is still deductible, with a few caveats.
· 529 Plans – The deadline for contributions is December 31. Remember that these offer breaks only on state tax, not federal.
Life Changes
This may seem obvious, but this disorienting year has a lot of us overlooking the details. Has your family changed this year, changing your tax picture? Do you have any new mouths to feed? Do you have shared custody and claim children as dependents in alternating years? Did you have any deaths in the family that changed the way you file?
The tax implications of these changes may not be top of mind, so make sure you have a full check-in with your CPA.
Net Operating Loss Carrybacks
While the CARES Act temporarily allowed net operating loss (NOL) carrybacks, most business owners can no longer use this option. NOLs from tax years ending after 2020 can only be carried forward—and carryforwards are limited to 80% of taxable income in any one tax period.
The pre-2018 two-year carryback rule generally does not apply to NOLs from tax years ending after December 31, 2017. However, certain farming losses remain eligible for a two-year carryback.
Tax Planning, Not Just Preparation
Here’s hoping all of us will put some sweat equity into our tax planning strategies so the year pays off. We can also start putting practices in place for 2025 to plan ahead.
Remember: These are only a few of the tips and details to keep in mind. Make sure you’re in conversation with your financial advisor and CPA to take advantage of opportunities available. It’s about tax planning, not just tax preparation – get in touch and let’s start the conversation today.
Tom Mullen is a non-registered affiliate of Cetera Advisor Networks, LLC.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
