Eight Year-End Financial Planning Tips from CPAs
Washington, D.C. (December 4, 2024) With just a few weeks left in 2024, the American Institute of CPAs (AICPA) advises Americans to take action and make a few year-end financial moves that can help prepare them for the year ahead, especially at tax time.
“Taking action by December 31 can make a difference in your financial health,” says Dan Snyder, CPA/PFS, Director of AICPA Personal Financial Planning. “There are some smart planning moves to make now to help your tax bill before April 15, 2025.”
Maximize contributions to tax-favored plans
Check to see how much you have contributed to your tax-advantaged retirement accounts (IRA and 401(k) plans) or health savings accounts (HSAs) if eligible with a high deductible health plan in 2024. Determine the year-end deadline for your individual plan and max out your contributions. This can help lower your taxable income for 2024 (except for Roth). The 2024 maximum contribution limits for these plans are:
IRA or Roth IRA: $7,000 (add $1,000 catchup contribution if you’re 50 or older)*
401(k): $23,000 (add $7,500 catchup if you’re 50 and older)
HSA: $4,150 for single, or $8,300 for family coverage (add $1,000 catchup if you’re 55 or older)
* Beware of contribution limit phase-outs based on income and workplace plan coverage.
Review and update your beneficiary designations
This can be an easy way to save yourself and your heirs from an expensive mistake. Review your designations for items like life insurance and retirement plans and make sure beneficiary names are updated. Beneficiary forms supersede will and trust directives when settling an estate.
Harvest your investment losses and gains
Take a look at your portfolio’s performance for the year and evaluate where you fall within the income tax brackets. Based on those items, it may be a good time to harvest losses and/or gains. If you’ve experienced investment gains, consider tax-loss harvesting (selling investments at a loss to offset the taxes owed on capital gains from other investments). If you have assets that have appreciated in value, consider tax-gain harvesting (selling assets that have appreciated in value when you have losses to offset the gain).
Spend through flexible savings accounts
Now is the time to “use it or lose it “when it comes to Flexible Savings Accounts (FSAs) or Limited FSAs used with an HSA account. Spend through flexible spending accounts by the end of the year. Some FSAs will allow you to carry over a certain amount, so be sure to check your individual plan.
Take advantage of Medicare Open Enrollment
Medicare Open Enrollment ends December 7, 2024. Think about the past year and how effective the plan you currently have has been for your health needs. Evaluate your prescriptions and potential changes in insurance drug lists. Consider making changes to your plan or adding additional coverage. For 2025, Medicare has implemented a $2,000 out-of-pocket maximum for Part D prescription drugs.
Review Required Minimum Distributions (RMDs)
For those age 73 or older, you are mandated to take a minimum distribution from qualified retirement plan accounts by Dec. 31 each year. Review your distribution amount so that you are not penalized for withdrawing too little or too late.
Charitable giving/gifting
If charitable giving is a priority, consider increasing your giving or make a year-end donation to your preferred charity to be eligible for a tax deduction for the 2024 tax year, if you itemize your taxes.
If you are age 70½ or older, consider making a qualified charitable distribution (QCD) of up to $105,000 in 2024 from your IRA with a direct payment to an eligible charity. QCDs count toward your Required Minimum Distribution amount if you have not already reached it and are not included in your taxable income. Using a QCD is a great way to get a tax benefit from a charitable contribution even if you cannot itemize your deductions. And if your spouse also qualifies, double it up!
Natural disaster victims
Casualty losses for 2024 – If you are an individual, losses of personal-use property from fire, storm, or other casualty, or theft are deductible only if the loss is attributable to a federally declared disaster. Check FEMA’s disaster page to see if your situation qualifies as a federally declared disaster and to get the needed FEMA disaster declaration number for your tax return. Only the portion of the loss not covered by insurance is deductible, so file a timely insurance claim and keep all expense receipts and insurance payment confirmations to document actual losses for tax deductions. Some expenses not directly related to the loss are not deductible (such as personal injury treatment or rental of a car), so be sure to check what types of expenses are and are not deductible as casualty losses (they may however be reimbursable under other insurance coverages.) In some cases, you may be able to amend the previous year’s tax return for the loss amount and receive a refund sooner, but there are deadlines to meet if this applies to you.
“Make a plan to talk with your CPA or CPA Personal Financial Specialist (CPA/PFS) as soon as possible,” says Snyder. “They have the knowledge to best help you plan for this year and next. The more communication you have with him/her, the better they can help you plan for your financial future.”
About the American Institute of CPAs
The American Institute of CPAs (AICPA) is the world’s largest member association representing the CPA profession, with 400,000 members in the United States and worldwide, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting. AICPA sets ethical standards for its members and U.S. auditing standards for private companies, not-for-profit organizations, and federal, state and local governments. It develops and grades the Uniform CPA Examination, offers specialized credentials, builds the pipeline of future talent and drives continuing education to advance the vitality, relevance and quality of the profession.
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