8 End of Year Tax Planning Tips

With 3 weeks left in the year, check out the below year-end tax tips that you can take advantage of until December 31st to help you save on your taxes!

Holiday or Bonus Income. Do you receive a bonus around the holidays? If your bonus pushes you into the next tax bracket, ask your employer to delay that bonus until January 1st and you won’t owe income taxes on it until you prepare your taxes for the following year. You also want to make sure that the deferred bonus is also reported to the IRS in the correct tax year by your employer if you defer income.

Charitable Contributions. If you make a charitable contribution with a credit card on December 31st, you can claim the charitable deduction on this year’s taxes regardless of when you pay the credit card bill. It’s common for folks to contribute in December but not actually pay out the amount in January.

College & Education Expenses. If you take advantage of the various education-related credits, you can accelerate these too. You can prepay for the spring term in December to claim that on your tax return this year, since education tax benefit is based on when you pay the education expenses.

Retirement Contributions. Retirement contributions to a tax-deferred account, like a 401(k), can reduce your income so consider increasing your contribution to a 401(k) to reduce your taxable income. In 2024, you can contribute a maximum of $23,000 per account and every dollar you contribute will reduce your taxable income. If you are 50 or older, you can contribute an additional $7,500.

The same applies to Traditional IRAs, which have a contribution limit of $7,000 for 2024 with an additional $1,000 for those 50 and older, as long as your income is below a threshold.

Medical Expenses. You can deduct medical expenses if they exceed 7.5% of your adjusted gross income. If you are near the threshold but not quite over it in 2024, you can prepay medical expenses for the next year to get above the 7.5% mark. Keep in mind, you must itemize your deductions in order to deduct your medical expenses instead of taking the standard deduction.

Flexible Spending Account. Don’t forget to use your flexible spending account by the end of the year! At the end of the year, the money in your FSA may disappear if you don’t use it depending on your account. Take care of some of those medical expenses you’ve been putting off that are covered by your FSA like over-the-counter medication or co-pays for additional doctor’s appointments.

If you find yourself with a lot left over, it’s a good time to review how much you’ve set aside for your FSA and adjust it accordingly. You don’t have to pay taxes on FSA contributions but you don’t want to be putting away too much and be stuck trying to find ways to spend it or lose it.

Business Expenses. Do you run your own business? If you have business expenses, look to shift them into this year. Did you want to purchase a new computer? Upgrade your current equipment? Get a new phone? Expenses related to your business are typically tax deductible and you’ll want to consider making those investments to reduce your taxable income.

It doesn’t have to be a full-time business to qualify. If you are a part-time driver for a ride-sharing company like Uber, many costs associated with your car would be included since the car is required to perform your job. This would include the car’s registration, insurance, maintenance, tires, and even cleaning costs.