With the April 15th tax deadline looming, it’s crucial to address key changes impacting your tax strategy for 2024. From adjustments in retirement plan contribution limits to maximizing deductions like HSAs and standard deductions, careful planning can significantly impact your tax liability this year and beyond. Stay informed and proactive to ensure your financial plan aligns seamlessly with your tax strategy.
With the April 15th tax deadline fast approaching, it’s now crunch time to file those taxes. Note that the 2024 tax season brings changes to the contribution limits for certain retirement plans. For example, your Required Minimum Distribution (RMD) will be reported as taxable income, except for any portion that has already been taxed, like distributions from designated Roth accounts. And if you turn 73 this year, it’s time to start taking withdrawals from your qualified retirement plan.
Here are some additional things to keep in mind while filing:
IRAs and retirement plans:
You can utilize your 401(k)s and IRAs to cut your taxable income through pre-tax contributions. The amount you can deduct depends on your earnings and filing status, but generally you have until April filing cut-off to boost contributions. For IRA’s, there is a $7,000 limit but those age 50 and up can add an $1,000 for a “catch up” contribution of $8,000.
The contribution limit for those with employer backed 401(k), 403(b), 457 plans, or those participating in the federal government’s Thrift Savings Plan has increased to $23,000. The “catch-up” contribution limit for employees aged 50 and over who participate in these plans can contribute up to $30,500.
HSAs:
Money you put into a Health Savings Account (HSA) can be written off on your taxes and this isn’t tied to whether or not you itemize deductions. The interest or other earnings on the assets in the account are tax-free. HSA distributions may also be tax-free if you paid for qualified medical expenses. The higher HSA contribution limits for 2024 are $4,150 for individuals, $8,300 for families, plus an extra $1,000 “catch-up” contribution for those age 55 and older.
Standard deductions:
For the 2024 tax year, the standard deduction has increased to $14,600 for individuals. This change reduces your taxable income, meaning you’ll owe less in taxes. And this increase is changing how some taxpayers approach itemizing deductions.
If your annual itemized deductions are less than the new standard deduction, itemizing may no longer be worth it. An alternative strategy may be to bundle deductible expenses, grouping “once a year” deductions into “twice the amount every other year” to accelerate your deduction totals and improve your tax liability. You may also want to defer income sources to future years if anticipate your tax bracket being lower by then. There is no limitation on itemized deductions.
If you do itemize, here are two deductions that can impact your totals but are often overlooked:
Small, charitable contributions:
Donations to tax exempt charities are tax-deductible. Always ask for and keep documentation like receipts or bank statements handy as proof of your contributions.
Medical expenses not covered by insurance:
Medical expenses that exceed 7.5% of your adjusted gross income can be taken as a deduction. There is a broad list of qualifying expenses to consider, including Medicare Part B and Part D premiums. Make sure to find any medical expense receipts you may have to add up the costs.
Tax prep doesn’t have to be stressful event. Staying organized throughout the year will help make sure that none of your deductions or contributions are overlooked or forgotten this time next year. We’re happy to work with your tax professional to be sure your financial plan aligns with your tax strategy.
Contact our office today to so we can make sure your plan aligns best with your financial standings and future goals.
Michelle Lee, Financial Advisor
323.845.4434
mlee@firstent.org
www.firstent.org
