2024 Year-End Tax Planning Guide for Individuals and Businesses
As the end of 2024 approaches, it’s time to consider your year-end tax strategies and considerations for 2025. Taking proactive steps now can lead to significant tax savings. Here’s what you need to know to optimize your tax position.
Key Highlights
Estate Planning for Businesses and Individuals
The Tax Cuts and Jobs Act (TCJA) brought about several favorable estate and gift tax provisions, which are scheduled to sunset after 2025. High-net-worth individuals and business owners should act before the TCJA’s elevated exemptions expire, reducing the estate tax exemption to pre-2018 levels. Key strategies to consider:
- Lifetime Gifts: Use the increased gift tax exemption to transfer assets out of your estate tax-free.
- Trust Structures: Consider using Intentionally Defective Grantor Trusts (IDGTs) or Spouse Lifetime Access Trusts (SLATs) to shift assets while maintaining income control.
- Business Succession Planning: If you’re a business owner, evaluate succession strategies to ensure a smooth transition and tax-efficient asset transfers to the next generation.
Corporate Transparency Act (CTA) Compliance
Businesses must comply with the Corporate Transparency Act (CTA), which requires many small and privately held companies to report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). Failure to comply can lead to significant penalties, so it’s crucial to ensure your business meets these requirements ahead of reporting deadlines.
2024 Standard Mileage Rates
For those who use their vehicle for business, medical, or charitable purposes, the IRS sets standard mileage rates annually. You may be able to take a deduction based on the mileage used for these purposes.
- Business mileage: 67 cents per mile.
- Medical and moving: 21 cents per mile.
- Charitable mileage: 14 cents per mile.
Individual Tax Planning Strategies
Maximize Retirement Contributions
Contributions to retirement accounts can significantly reduce your taxable income. These contributions can lower your taxable income, especially if you’re nearing retirement.
- 401(k) contributions are capped at $23,000, with an additional $7,500 in catch-up contributions for those over 50.
- IRA and Roth IRA limits are up to $7,000, with an extra $1,000 catch-up for those 50 and older.
Required Minimum Distributions (RMDs)
Under the SECURE 2.0 Act, the starting age for RMDs has increased to 73. If you are required to take an RMD, ensure you do so by year-end to avoid a penalty. RMDs are included in your income tax; however, qualified distributions such as rollovers to qualified accounts and Qualified Charitable Distributions (QCDs) are tax-free.
Charitable Contributions
Charitable giving remains an effective way to reduce taxable income. You can deduct cash contributions up to 60% of your adjusted gross income (AGI). If you are 70½ or older, Qualified Charitable Distributions (QCDs) are a great way to make tax-free donations from an IRA to a qualified charity. Bonus: this can satisfy your RMD requirement without adding to your taxable income. Another option is to donate appreciated securities, avoiding capital gains taxes on the appreciated amount.
Business Tax Planning Strategies
Section 179 and Bonus Depreciation
Maximizing these deductions before December 31 is a powerful way to reduce taxable income, especially for businesses planning significant capital investments
- Section 179 Deduction: Expense the cost of qualifying business purchases such as equipment, vehicles, and software.
- Bonus Depreciation: Businesses can write off 60% of the cost of eligible assets placed in service by year-end. This will be reduced to 40% in 2025.
Leverage Tax Credits
Several tax credits are available for businesses that meet certain criteria.
- R&D Tax Credit: If your business invests in research and development, you may qualify for a federal tax credit to offset some of those costs.
- Work Opportunity Tax Credit (WOTC): This credit is available to businesses that hire individuals from specific target groups, such as veterans or long-term unemployed.
- Clean Energy Tax Credits: There are multiple credits and incentives available to businesses that invest in clean energy. These include the Advanced Energy Project Credit, Energy Efficient Commercial Buildings Credit, Credit for Builders of New Energy-Efficient Homes, and clean vehicle credits.
Don’t Forget About SALT
Thousands of state and local tax (SALT) credits and incentives are underutilized. Many of these can offer strong returns on investments, but they can be tricky to navigate. Your G&G advisor can help you determine what you can take advantage of to maximize your tax savings.
Additional Considerations
Election Implications: With every election cycle, there’s potential for significant tax law changes, affecting planning decisions for the current and future tax years. Monitor the political landscape and be prepared for possible shifts in tax policy.
Increased IRS Audit Activity: The IRS plans to increase its audit presence, focusing on high-income individuals and businesses. The IRS is growing the use of artificial intelligence (AI) to identify compliance risks and flag returns for audits. To minimize the risk of an audit, make sure all your records are in order and that you’re compliant with tax laws.
Nexus: As businesses expand across state lines, state tax nexus rules have become more complex. Your business may have tax obligations in states where you have no physical presence due to remote workers, online sales, or other activities. Review your business activities to determine whether you have established nexus in any states where you’re not currently filing returns.
Final Thoughts: Proactive Tax Planning Pays Off
Year-end tax planning isn’t just about checking boxes—it’s about being proactive and strategic to maximize tax savings. Consulting with your Goering & Granatino advisor can help tailor these strategies to your individual or business circumstances, ensuring that you make the most of available deductions and credits while staying compliant with new regulations.
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