Smart Moves for Year-End Tax Planning For Individuals 📆💡

When the curtain falls on another year, savvy taxpayers take centre stage, preparing to make smart moves to optimize their financial picture. The spotlight shines on one key objective: trimming that tax bill. How’s it done? It’s a fine dance between dialling down income or ramping up deductions. But recent times have tossed a new rhythm into the mix, with potential tax rate hikes lurking in the wings and inflation’s beat persisting, albeit at a slower tempo.

Let’s talk numbers: the IRS has unveiled the tax brackets for 2024, tailored to the tune of inflation. While the economy’s inflationary crescendo has softened from last year’s 8% to about 5%, the tax structure has shifted in response. Take the top tier – joint filers with taxable income sailing past $693,750 were in the 37% marginal tax bracket in 2023. Come 2024, that bar lifts to $731,200. It’s a twist that could see deferred income in 2024 taxed more gently, thanks to these inflation-adjusted brackets.

Now, onto the realm of itemized deductions. The Tax Cuts and Jobs Act (TCJA) has stirred the pot, making the standard deduction the go-to for many taxpayers until 2025. But if you’ve got a flair for timing, the stage is yours. Consider frontloading charitable contributions or medical expenses to amplify deductions in years where itemizing steals the show.

For instance, bunching up charitable donations when itemizing is your best bet pays off. And when it comes to medical costs, if they exceed 7.5% of your adjusted gross income (AGI), timing is everything. Think about holding off on non-urgent medical or dental work until the next act – 2024 – if it won’t cut this year. Remember, though, the TCJA has also capped state and local tax (SALT) deductions at $10,000 annually and paused deductions for casualty and theft losses, save for those in qualified disaster areas.

Here’s a pro tip: the standard deduction for singles in 2023 is $13,850 and doubles to $27,700 for joint filers, with a rise to $14,600 and $29,200, respectively, in 2024. Taxpayers aged 65 or older get an extra encore with an additional $1,850 deduction.

As the year wraps up, if you’re set to benefit more from itemizing, consider accelerating deductible expenses into 2023. Think charitable giving, mortgage interest payments on up to $750,000 of acquisition debt, SALT payments within limits, and even home improvements that qualify for mortgage interest deductions. And don’t forget to schedule medical appointments if you’re eyeing a deduction this year.

Charitable hearts, listen up: the tax law is your friend, with generous limits and a need for meticulous record-keeping. Your mission before the New Year’s ball drops: Step up your gift-giving game. Whether it’s cash or property, if you’ve made the donation in 2023, it’s deductible in 2023, credit card bill in 2024 notwithstanding. Monetary gifts are capped at 60% of your AGI, with the chance to carry over any surplus for five years. As for donating appreciated property you’ve held for over a year, you could be looking at a deduction equal to the fair market value, up to 30% of your AGI.

For those who’ve hit the 70½-year mark, consider a qualified charitable distribution (QCD). This nifty move lets you shift up to $100,000 from your IRA straight to charity, tax-free.

Let’s not overlook the complex alternative minimum tax (AMT), which plays by its own rules, with quirky adjustments and a competing exemption amount. Your task is to dance with the higher tax, whether it’s AMT or regular. A year-end twist could mean postponing certain income to 2024 to lower your AMT exposure in 2023 – think deferring those incentive stock options (ISOs).

Eyeing a new ride? The electric vehicle (EV) scene could have some tax perks worth exploring. The Inflation Reduction Act (IRA) has revved up the tax credits for EV buyers in 2023 but put the brakes on for some. The headline here is a potential $7,500 credit for EVs with U.S.-sourced battery materials, assembled in North America. But, there’s a catch – if your earnings as a single filer hit a certain threshold, this credit slips through your fingers.

As the year-end curtain call approaches, it’s time to take the financial stage and make your move. Whether it’s strategizing deductions, planning for AMT, or considering an eco-friendly vehicle purchase, the script is yours to write. Make it a performance to remember, with a tax bill that deserves a standing ovation.