End-of-Year Tax Considerations for 2024

Maximize Retirement Contributions 

One of the easiest ways to lower taxable income is by contributing to retirement accounts like a 401(k) or IRA. For 2024, the contribution limits for 401(k)s are $23,000, with an additional $7,500 catch-up contribution allowed for those 50 or older. Maxing out 401(k) contributions not only boosts retirement savings but also reduces taxable income, as contributions are made pre-tax. Contributions to traditional IRAs are also tax-deductible, with a maximum limit of $7,000, with an additional $1,000 catch-up contribution for individuals 50 or older. Contributions to a Roth IRA are not tax-deductible, but they grow tax-free and allow for qualified withdrawals in retirement. Individuals who are self-employed can contribute to a SEP IRA or Solo 401(k), with limits based on earnings. For SEP IRAs, you can contribute up to 25% of your income, with a maximum of $69,000 for 2024. These contributions can reduce your taxable income and grow tax-deferred until retirement. Maxing out retirement contributions before the year closes out can save you current or long-term taxes as well as ensure long-term financial security.  

Harvest Investment Losses 

Tax-loss harvesting is another useful strategy to consider before year-end. Tax-loss harvesting is the strategic sale of assets at a loss to offset capital gains taxes owed from selling profitable assets. It’s often used to reduce short-term capital gains, which are taxed at higher rates than long-term gains. Investors typically employ this tactic at the end of the year to minimize taxes by selling investments that have decreased in value to claim a credit against their gains. For 2024, up to $3,000 of net losses can be used to offset ordinary income, with any remaining losses carried over to future years. With this, it is important to not only be aware that selling an asset at a loss disrupts the balance of a portfolio, but to avoid a wash-sale scenario.   

The Wash-Sale Rule 

The wash-sale rule is an IRS regulation that disallows a tax deduction on an asset sold at a loss if the same or a "substantially identical" asset is repurchased within 30 days before or after the sale. This rule prevents investors from selling assets just to claim a tax benefit and quickly buying them back. In a wash sale, the loss is not deductible but added to the cost basis of the new purchase. Violating the rule can lead to fines or trading restrictions. 

Take Advantage of Expiring Tax Provisions 

Certain tax provisions are set to expire at the end of 2024 and could provide one-time benefits that won't be available in future tax years, possibly yielding significant savings. For example, the temporary provision for bonus depreciation for businesses is set to change in 2025. In 2024, eligible businesses can deduct up to 80% of the cost of qualified assets, like equipment and machinery, in the year they are put into use. However, this rate will decrease to 60% next year, so it’s important to make purchases or invest in qualifying assets before December 31 to benefit from the higher deduction. Additionally, the expanded Child Tax Credit, which was temporarily raised to $3,600 per child under 6 and $3,000 for children aged 6 to 17 under previous COVID-19 relief laws, may return to lower amounts unless extended by Congress. Eligible families should make sure they claim the full credit available for 2024. Other expiring tax benefits may involve temporary deductions, credits, or incentives introduced through recent legislation, such as tax credits for energy-efficient home improvements, including solar panel installations. Some of these provisions are specific to certain years or projects, so reviewing any applicable expiring credits, such as those for residential energy efficiency upgrades, can help you maximize savings before the end of year. 

Review Your Tax Withholding and Estimated Payments 

Lastly, it’s important to review your tax withholding or estimated tax payments to avoid underpayment penalties. If you’ve experienced significant income changes in 2024, adjusting your withholding now can prevent surprises when you file your return. 

Start by checking your paycheck and W-4 form to ensure your withholding aligns with your tax obligations. If you’ve had too much withheld, adjusting your W-4 now can increase your take-home pay. If you’ve withheld too little, you may owe taxes when filing and face penalties. For self-employed individuals or those with additional income, review your estimated tax payments. Ensure you've made sufficient quarterly payments, especially if your income has fluctuated. Adjusting your remaining estimated payments can help avoid underpayment penalties. 

1031 Exchanges and Real Estate Tax Considerations 

If you're in the real estate sector or thinking about selling investment property, consider using a Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange to defer capital gains taxes. A Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange allows you to reinvest proceeds from the sale of real estate into a new property without immediately paying taxes associated with the real estate transaction. This is particularly useful if you’re selling at year-end but don’t want to realize the gain in 2024. For more on how to structure a Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange , consult a Qualified Intermediary like Accruit. 

For investors who are on the fence about selling property in Q4 or delaying listing the property until Q1 2025, 1031 tax straddling could be a compelling reason to list the property now rather than waiting until 2025. If a Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange spans multiple tax years, i.e. is started in 2024, but the 180-day exchange period extends into 2025, and the Exchanger fails to identify or acquire Replacement Property, the Exchanger may still be able to defer capital gains taxes until the 2025 tax due date under IRS Installment Sale rules (Section 453). This provides flexibility in managing tax obligations, even in failed exchanges.  

Conducting a Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange in Q4 can provide flexibility. If the exchange fails due to missed deadlines, any returned funds become taxable in 2024. However, the default reporting allows for the deferral of capital gains payment on the sale of the Relinquished Property until the 2025 taxes are due, which coincides with the deadline for filing individual 2025 tax returns. By combining Section 1031 with Section 453, Exchangers can report exchange funds as income in the year received rather than the year of the sale, which provides a potential benefit for those considering a Q4 sale.  

An additional consideration for Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s started in Q4 of 2024 is to ensure you get the full 180-day exchange period. Specifically for Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s started after October 18th, it is important to plan your tax filing accordingly. The exchange deadline would be the individuals tax return due date, which is April 15th, rather than day 180 which would fall after April 15th. To take full advantage of the 180-day exchange period, you will need to file an extension for your 2024 taxes. Keep in mind that for individuals in Maine and Massachusetts, the tax filing deadline is April 17th, 2025. Other states, such as Delaware, Iowa, Louisiana, and Virginia may have differing deadlines for filing state tax returns. By filing an extension, you can utilize the entire 180-day period to complete your exchange without the pressure of an imminent tax return deadline.  

By reviewing and implementing these tax strategies now, you can significantly reduce your 2024 tax burden and set yourself up for financial success in the coming year. Always consult with a tax professional to personalize your strategy and ensure you’re making the most of available opportunities. 

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified A person acting to facilitate an exchange under section 1031 and the regulations. This person may not be the taxpayer or a disqualified person. Section 1.1031(k)-1(g)(4)(iii) requires that, for an intermediary to be a qualified intermediary, the intermediary must enter into a written "exchange" agreement with the taxpayer and, as required by the exchange agreement, acquire the relinquished property from the taxpayer, transfer the relinquished property, acquire the replacement property, and transfer the replacement property to the taxpayer. Intermediary , and as such does not offer or sell investments or provide investment, legal, or tax advice.