2024 Year-End Individual Tax Planning Guide

With 2024 soon coming to a close, there is still time to take advantage of tax-saving ideas to lower your 2024 tax bill before December 31. This guide offers potential tax-saving opportunities for you to consider.

Estimated Taxes/Adjusting Withholding

Your 2023 tax return is a great starting point for 2024 year-end tax planning. Did you owe money to the IRS or a state, or did you receive a big refund? If, after reviewing your 2023 return, you had a balance due, consider adjusting paycheck withholding on Form W-4 or nonwage income withholding on Form W-4P or Form W-4R for the remainder of 2024 and/or make estimated tax payments to avoid an estimated tax penalty and another balance due when your 2024 return is filed. You may be able to avoid the penalty by increasing your tax withholding and/or making one or more estimated tax payments so that withholding plus estimated payments equals 90% of the tax shown on the 2024 return when filed or 100% of the tax shown on the 2023 return, whichever is less. But note that the estimate must equal 110% of the 2024 tax if the AGI shown on your 2023 return exceeds $150,000 ($75,000 if you are married and filing a separate return).

Also factor in the 3.8% net investment income tax (NIIT), the receipt of unemployment benefits, distributions from IRAs and §401(k) plans, sales of investment property, etc., when adjusting withholding or making estimated payments. In addition, factor in any IRA required minimum distribution (RMD) that you will receive in 2024.

Note that with the $10,000 deduction limit on state and local taxes (SALT) in place, accelerating the fourth estimated state income tax payment into December 2024 to increase the current-year SALT deduction may be less important. However, accelerating or deferring the state estimated tax payment may make a difference in being able to benefit from a higher itemized deduction versus the standard deduction, so the timing of the payment still should be considered.

Basic Numbers You Need to Know

Adjusted Gross Income (AGI)

Because many tax benefits are tied to or limited by AGI — IRA deductions and certain tax credits, for example — a key aspect of tax planning is to estimate both 2025 and 2025 AGI. Also, when considering whether to accelerate or defer income or deductions (discussed further below), be aware of the impact this may have on AGI and the ability to maximize itemized deductions that are tied to AGI, such as medical expenses. Your 2023 tax return and 2024 pay data and other income and deduction-related documents are a good starting point for estimating your AGI.

Tax Rates (Tax Brackets)

Another important number is your “tax bracket,” i.e., the rate at which the last dollar of income is taxed. Although the income thresholds for the tax brackets are indexed for inflation, if income increases faster than the inflation adjustment, you may be pushed into a higher bracket, and thus subject to a higher marginal tax rate. If so, the potential benefit from any tax-saving opportunity is increased (as is the cost of overlooking the opportunity).

The Standard Deduction

Another key number is the standard deduction. The standard deduction is important for planning the timing of one’s itemized deductions as itemized deductions must exceed the standard deduction to maximize the tax value of the deductions. For 2024, the standard deduction is: $29,200 for married filing jointly and qualifying surviving spouses; $21,900 for head of household; and $14,600 for all other taxpayers.

For 2024, the additional standard deduction for older taxpayers and the blind is $1,550 each and $1,950 for older taxpayers and the blind if unmarried and not a qualifying surviving spouse.

Income, Deductions and Credits

Deferring the Receipt of Income Until 2025

If you expect your AGI to be lower in 2025 than in 2024 or anticipate being in the same or a lower tax bracket in 2025, you may benefit by deferring the receipt of income until 2025. Deferring income is advantageous so long as the deferral does not bump you into a higher tax bracket in the succeeding year(s). Deferring income may be disadvantageous, however, if the deferred income is deferred compensation under a nonqualified deferred compensation plan subject to §409A, a special provision that makes the income includible in gross income and subject to additional tax.

If you are self-employed and file Schedule C (e.g., as a sole proprietor or single-member LLC) and operate on a calendar year, cash basis accounting method, consider delaying 2024 year-end billings to clients so that payments will not be received until 2025.

Accelerating the Receipt of Income into 2024

In limited circumstances, you may benefit by accelerating income into 2024. For example, if you anticipate being in a higher tax bracket in 2025 than in 2024 or need additional income in 2024 to take advantage of an offsetting deduction or credit that will not be available in future tax years, it may make sense to accelerate the receipt of income. However, accelerating income into 2024 may be disadvantageous if you expect to be in the same or lower tax bracket for 2025.

If you are self-employed, for example, it may be disadvantageous to accelerate income into 2024, even if you will be in a higher bracket in 2025, if the acceleration causes you to cross a threshold that would result in an offsetting reduction in the §199A qualified business income deduction. The §199A deduction phase-out thresholds for 2024 begin at $383,900 for married individuals filing joint returns, $191,950 for married individuals filing separate returns, and $191,950 for all other returns.

Some ways to accelerate income into 2024 include:

Year-End Bonuses: If your employer generally pays year-end bonuses early in 2025, see if you can have your bonus paid before the end of 2024.

Retirement Plan/IRA Distributions: If you have attained age 59 1/2 and participate in an employer retirement plan or have an IRA, consider taking any taxable withdrawals before 2025. You may also want to consider making a Roth IRA rollover distribution (discussed further below).

Itemized Deduction Planning

Deduction timing is an important element of year-end tax planning. However, deduction planning is complex, due to factors such as AGI levels, the AMT, filing status, and the standard deduction. In addition, an expense is deductible only in the year in which it is actually paid. Therefore, if your tax rate is going to increase in 2024, it may be a good strategy to accelerate spending into 2024 to take the deduction in 2024. Also, consider dating your checks and mailing them before the end of 2024.

Deduction planning also is affected by the standard deduction. If itemized deductions are relatively constant and are close to the standard deduction amount, little or no benefit will be gained from itemizing deductions each year. However, simply taking the standard deduction each year means the potential loss of the benefit of itemized deductions that exceed the standard deduction. To maximize the benefits of the standard deduction and itemized deductions, consider adjusting the timing of deductible expenses, i.e., “bunching,” so that they are higher in one year and lower the following year. This can be accomplished by paying deductible expenses in 2024, such as mortgage interest due in January 2025, state estimated tax payments due in early 2025 or doubling up on charitable contributions every other year.

For 2024, medical expenses, including amounts paid as health insurance premiums, long-term care insurance premiums, and dental insurance premiums are deductible only to the extent that the total medical and dental expenses exceed 7.5% of AGI for all taxpayers. “Bunching” medical and dental expenses in one calendar year also can help maximize the allowable deduction.

If you anticipate a state income tax liability for 2024 and plan to make an estimated payment typically due in January 2025, consider making the payment before the end of 2024. However, recognize that the current $10,000 cap on deducting state and local taxes ($5,000 if married filing separately) may significantly impact this type of deduction planning.

Consider making charitable contributions by the end of 2024 using a credit card if the bill will not have to be paid until 2025. A pledge to make a donation is not deductible unless it actually is paid by the end of 2024.

2024 Year-End Individual Tax Planning Guide