Have You Gone Through Your Tax Planning Checklist?

As the dust settles on another tax season and you finalize your income tax return, it’s time to shift focus from the rearview mirror to the road ahead. Tax planning isn’t a once-a-year event; it’s a continuous effort and a proactive collaboration between you, a financial advisor and tax professionals to develop effective strategies that help ensure tax compliance.

Even if tax laws haven’t changed, your personal tax situation might look different than it used to – or vice versa. Your income, expenses or deductions could have shifted, affecting your taxable income and adjusted gross income. Changes in your life, such as a new job increasing your ordinary income, additional investment income or variations in expenses, can all have significant tax implications.

To do tax planning effectively, you should meet with a tax professional annually. Be ready to share your most recent tax return – it’s a map that can help guide you to new tax strategies, deductions and credits that could lead to significant tax savings.

Reviewing your tax withholding and estimated tax payments can help you manage your tax liability effectively and avoid surprises at tax time. Consider whether you are eligible for tax credits such as the child tax credit, which can directly reduce your tax liability. Evaluating your retirement contributions to tax-advantaged accounts like your retirement plan or health savings account can lower your taxable income. Additionally, strategies like tax loss harvesting can offset capital gains, reducing your net investment income tax and ordinary income for the year.

The SECURE 2.0 Act and other legislation will bring several changes to tax law that could present opportunities or have tax implications for you, especially concerning your retirement accounts and retirement contributions. See our tax planning checklist of tax considerations below, and if any of them apply, think about scheduling an appointment with a tax professional to review your financial situation and strategies for the current tax year.

2024 TAX YEAR CHECKLIST

Do you have any tax planning opportunities? Review the checklist and schedule a conversation with a tax professional if any of these situations apply to you.

✓ YOU’LL HAVE A BIG INCOME INCREASE IN 2024 OR THE NEXT FEW YEARS

Action to consider: Review the impact to your tax bill

Timing: Now

For example, these kinds of changes can result in a much higher tax bill:

• Receiving a windfall (for example, an inheritance, bonus, settlement or lottery winnings)
• Starting a new job
• Selling a house, other property or a business
• Starting Social Security
• Starting Required Minimum Distributions

A tax professional can help you understand whether these changes might impact your tax strategy as well as options to potentially offset the impact. And remember that planning can and sometimes should begin years in advance.

✓ YOU’RE RECEIVING SOCIAL SECURITY

Action to consider: Check whether any of your payments will be taxed

Timing: Now

Cost-of-living increases for the past few years are the highest in recent history. But the threshold that triggers taxes on your Social Security payments is fixed – a “combined income” of $25,000 if you’re single or $32,000 if you’re married.

Higher payments combined with other income could mean your payment will now be subject to taxes even if they weren’t before. Talk with a tax professional about whether any change in your tax strategy could be warranted.

✓ YOU’VE STARTED TAKING THE STANDARD DEDUCTION

Action to consider: Make qualified charitable distributions instead of cash donations

Timing: Now

Many people now find the increased standard deduction to be more valuable than itemizing deductions. Of course, taking the standard deduction means you can’t deduct things like charitable contributions. But if you’re at least age 70.5, you can make qualified charitable distributions from your IRA instead of using cash. That way, the amount you take from your IRA won’t be added to your income and taxed.

✓ YOU INHERITED AN IRA IN 2020 OR AFTER

Action to consider: Review the tax implications of taking RMDs from inherited IRAs vs. leaving the money in the IRA

Timing: 2025

Beneficiaries who inherit an account from someone who was already taking RMDs are now subject to the 10-year rule and must withdraw a minimum amount after inheriting the IRA. Annual distributions are now required for years 1 through 9 starting in 2025.

Talk to a tax professional about whether taking more than the minimum distributions from the IRA could be advantageous if in a lower tax bracket.

✓ YOU’RE IN YOUR LATE 50S OR EARLY 60S

Action to consider: Making increased catch-up contributions

Timing: 2025

Courtesy of SECURE Act 2.0, beginning in 2025, people aged 60 to 63 will be able to make extra-large catch-up contributions to their 401(k) if their employer allows it, giving you the potential opportunity to further reduce your taxable income and increase your retirement savings during those years.

✓ YOU’RE A TAXPAYER, ESPECIALLY ONE WITH A LARGE ESTATE

Timing: Before the potential sunset of the Tax Cuts and Jobs Act in 2026

Pretty much everyone will be affected if the Tax Cuts and Jobs Act is allowed to expire with no action from Congress. And while changes to income tax bills will have the broadest impact, the biggest impact could be to those with large estates, as the Gift and Estate Tax exclusion is cut by more than half.

NEED TO SCHEDULE YOUR CHECK-IN?

Tax planning is an ongoing collaboration between you and a tax professional. Meet with a tax professional at least annually to review your situation.