The Ultimate Checklist of End-of-year Tax Planning Opportunities
The Ultimate Checklist of End-of-Year Tax Planning Opportunities
It’s nearly the end of 2024, so it’s time to start thinking about your finances before the tax year ends. It’s the prime opportunity to ask yourself about the pertinent details: Did you spend more than you made? Did you max out those tax-advantaged accounts? Did you take advantage of your HSA benefits?
Tech professionals at companies like Microsoft, Amazon, Meta, and Google have even more options to consider due to your compensation package and benefits.
This ultimate checklist of year-end tax planning opportunities will give you the framework you can build on for years to come. Sit back and relax as we dive into the specifics you’ll need to sort out before the IRS comes knocking on your door!
1. Maximize Tax Deductions
Have you fully tapped into the benefits of a tax-deductible retirement savings plan? An employer-sponsored plan like a 401(k), 403(b), or 457(b) can be a great way to save up a nice nest egg for your golden years while reducing tax liability in the here and now.
For the 2024 tax year, employees are eligible to contribute up to $23,000 to 401(k) and similar accounts like these.
Not only is that a huge chunk of change toward your future, but it reduces taxable income for 2024. Suppose you made $210,000 this year and contributed the maximum amount to your employer-sponsored 401(k). That means your adjusted gross income would be $187,000, so you would only pay taxes on that amount (plus get bumped into a lower tax bracket).
Keep in mind that you may also be eligible for catch-up contributions if you are over the age of 50. This permits you to contribute an additional $7,500 annually.
These tax deductions can substantially lower out-of-pocket spending to the IRS.
2. Maximize Roth Conversion Opportunities
While you were reviewing your budget, did you find that you had a lower income in 2024 than in previous years? This could be the ideal time to convert pre-tax investments to a Roth account to allow for tax-free growth over the years ahead of you. Plus, you’ll be able to withdraw those funds tax-free in retirement!
Be sure to convert any after-tax 401(k) or non-deductible IRA contributions to a Roth before the year ends to avoid missing out on this opportunity (if applicable).
Speaking of Roth conversion opportunities, this is also a great time to check if you qualify for a mega back-door Roth strategy. Once you’ve maxed out your Roth IRA and 401(k), a back-door IRA can be a smart financial move if you have additional funds to invest. Several big tech employers (like Amazon) offer this benefit.
3. Required Minimum Distributions (RMDs)
If you’re over the age of 72, you’re likely required by the IRS to take out a portion of your tax-deferred accounts every year. After all, they did give you all those tax deductions years ago. If you fail to take your RMD, the IRS can penalize you 50% on any amount that was required to be taken on top of your ordinary income tax rate!
RMDs must be taken by December 31st every year.
4. Tax-Loss Harvesting
Individuals who own appreciated stock or are compensated with RSUs by their employer are familiar with capital gains. If you’re a tech professional working at Amazon, Microsoft, Meta, and Google, this is more than likely the case for you!
But what about the opposite effect when your stock holdings underperform? If this describes your investment portfolio, you may need to take advantage of tax-loss harvesting this year.
The IRS allows you to sell the stock and book the loss which can be deducted against other capital gains or even taken as a deduction against your income. These realized losses can be deducted from ordinary income up to a maximum of $3,000 per year.
What happens if you have more than $3k in losses? You can still cut those investments loose and carry losses forward into the future indefinitely until the entire amount has been completely used up. Just because an investment turned out to be a loser doesn’t mean it can’t be a tax winner!
5. Make Charitable Contributions
Are there any causes or organizations dear to your heart? If you want to leave behind a charitable legacy and ensure that your wealth does some good in the world (while earning a tax deduction for this fiscal year!), you can do so by maximizing your charitable giving throughout the year.
Maximize deductions by bunching donations or using a donor-advised fund to make recommendations for future acts of generosity. If you happen to work at Microsoft, Microsoft’s Employee Giving Program will maximize your impact, as they will match you dollar-for-dollar up to $15,000 a year.
You may also consider Qualified Charitable Distributions (QCD) from your IRA, if applicable. You can even give low-basis, highly appreciated stocks to the charity of your choice.
6. Max Out Health Savings Account (HSA)
Take advantage of tax benefits to cover the cost of qualified medical expenses. You never know when a medical emergency might pop up, but you can use your HSA to cover routine healthcare costs.
HSAs are fantastic because you can contribute money tax-free, let it grow tax-free, and take tax-free withdrawals to cover qualified medical expenses. It’s a triple-tax-advantaged account!
It’s the end of the year so if you’re unable to max out the contribution through your employer’s payroll deduction, you can still make a hefty lump-sum contribution to this account by the tax-filing deadline under the “last month rule.” Even if you weren’t eligible for an HSA all year long, you can still max out contributions by the last month of the year.
That said, not everyone qualifies for a health savings account. If you don’t have one, use up Flexible Spending Account funds (FSA) before they expire, which often occurs at the year’s end.
7. IRA Contributions for Stay-at-Home Spouses
If your spouse doesn’t have any income, they can still contribute to an IRA based on your income, allowing them to save for retirement. You can contribute up to $7,000 on their behalf, and if they’re over 50, they can add an extra $1,000 in catch-up contributions. This contribution can still be deducted when you file jointly.
Keep in mind, there are income phaseouts on the deductibility of these contributions. For instance, if you’re married, filing jointly, and you have an employer-sponsored retirement plan like a 401(k) or 403(b), you won’t be able to deduct your spouse’s IRA contribution if your household income exceeds $218,000 in 2024.
8. Self-Employed Retirement Options
As a tech professional, you might be focused on employer-sponsored retirement plans like a 401(k), but it’s smart to understand the options available to you in case you ever decide to start your own company or fill your time with a side hustle after retirement. Whether you're earning income from consulting, freelance work, or a new venture, knowing your self-employed retirement options can help you continue building wealth.
One of the most common gaps we see in a client’s financial plan often comes in the form of self-employed individuals with no retirement account! They may not have even met with a financial advisor or CPA to see what’s available to them.
If you're earning income on a 1099 or K-1, you won’t qualify for employer-sponsored retirement accounts—but you do have powerful alternatives. Self-employed individuals may be eligible for a Solo 401(k) with higher contribution limits or a Self-Employed Pension Individual Retirement Account (SEP IRA) that allows you to contribute up to 25% of your net business income up to $69,000 for 2024.
9. Review Capital Gains Strategy
Balance your long-term and short-term gains with your overall tax strategy. You should have your finger on the pulse of your investments so that you are never caught unaware when the IRS wants you to pay up for your investments.
Restricted stock units (RSUs) often need to be reviewed at the year’s end. Do you know when your RSUs vest? Should you sell them right away to avoid your RSUs being taxed twice due to capital gains? These are the kinds of tax planning questions you need to consider ahead of time so that you can make your move swiftly when the time is right.
For those who work in tech, here are some quick guides and vesting schedules for your company’s RSUs:
A lot of times, our clients at tech companies see a huge tax bill at the end of the year. This is generally because the default sell-to-cover rate of 22% isn’t nearly enough to cover what they owe. If this is the case for you, check out our article on how to reduce taxes on RSU income or schedule a call with us so we can strategize a plan for you.
10. Plan for Next Year’s Contributions
Last but not least, it is time to make a plan for the upcoming year. Based on your assessments at the close of 2024, you should take a few moments to set up automatic contributions for your HSA and retirement accounts. This takes the pressure off of making a decision again each pay period and gives you one less thing to think about.
It’s also a great time to prepare for future tax changes. Just about every year, the IRS changes the maximum amount you can contribute to certain retirement savings accounts. Consider potential tax law changes that are on the horizon and how they affect your financial plan for the next year.
Get a Professional Strategy for Your Wealth Planning
For professionals like you, managing a compensation package that includes RSUs, performance bonuses, and access to company benefits like 401(k)s and deferred compensation programs can make tax planning especially complex. You already excel in your field, but navigating the intricate tax decisions tied to your income and portfolio might feel like a full-time job in itself.
That’s where Consilio Wealth Advisors comes in. We specialize in working with tech professionals at Microsoft, Amazon, Meta, and Google, taking the heavy lifting off your plate so you can focus your time and energy where it matters most. From minimizing your tax liability to optimizing your wealth strategy, we’re here to guide you through the complexities and help set you up for long-term financial success.
Ready to get started? Schedule a consultation today to learn how we can support your wealth planning journey!
Not ready but still interested in learning more? Check out our free resources for tech employers! Our downloadable guides and cheat sheets are packed with tips and strategies to help you maximize your benefits and extract every dollar you deserve.
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