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Last Minute Tips Before Tax Day

Last Minute Tips Before Tax Day

February 06, 2024

Fewer things are more reliable than Tax Day, even if the deadline has shifted around a bit in recent years. This year, it’s April 15th for most taxpayers, and recent legislation changes include substantial increases to standard deduction amounts and modifications to itemized deductions. Also, if you’ve reached age 73 in 2023, you generally must start taking withdrawals from your qualified retirement plan. Please Note: Your Required Minimum Distribution (RMD) will be reported as taxable income except for any part that was taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts) so be sure to include that information on your return, if applicable.

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IRAs and Retirement Plans 

Tax-advantaged retirement savings vehicles (such as your employer’s 401(k) and/or a traditional IRA) can help reduce your taxable income because contributions are made on a pre-tax basis. Those traditional IRA contributions may be fully or partially deductible, depending on your filing status and income, and your deduction may be limited if your income exceeds certain levels and if you (or your spouse) are covered by a retirement plan at work. While your contributions to your employer 401(k) plan cap out at the end of each tax year, you generally have until the April filing deadline to maximize contributions to an IRA. For 2024, the contribution limit increases to $7,000 for the year.

***Individuals aged 50 and older can add an additional $1,000 for a ‘catch-up’ contribution of $8,000.

Health Savings Account (HSA)

You can claim a tax deduction for contributions that you (or someone other than your employer) make to your HSA, even if you don’t itemize your deductions. Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income, and the interest or other earnings on the assets in the account are tax-free. Distributions may also be tax-free if you pay qualified medical expenses. The higher HSA contribution limits for 2024 are $4,150 for individuals and $8,300 for families, plus an extra $1,000 catch-up contribution for those aged 55 or older. Contributions for the 2023 tax year can be made up until April 15, 2024.

Timing is important

With the higher standard deduction amount for 2024, many folks who used to itemize are finding that it doesn’t make sense unless the total is more than the standard deduction amount. Consider grouping your “once a year” deductions into “twice the amount every other year” to accelerate your deduction totals and improve your tax liability. Similarly, you may want to defer income sources to future years if your tax bracket might be lower then.

If you DO itemize, here are two deductions that can impact your totals but are often overlooked:

  • Smaller, out-of-pocket charitable contributions. While larger deductions made via checks or payroll are hard to miss, the cost of stamps to mail out a school fundraiser flier or the miles driven in service of a charitable organization tend to fall through the cracks. Small expenses add up quickly, so don’t forget them!
  • Medical expenses not covered by your insurance. Medical expenses that exceed 7.5% of your adjusted gross income can be taken as a deduction. There is a very broad list of qualifying expenses to consider, including Medicare Part B and Part D premiums. So, find your receipts and tally the costs!

Legislation changes and key tax provisions to note for the 2024 tax year:

  • The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased to $23,000, up from $22,500.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan remained $7,500. Participants who are 50 and older can contribute up to $30,500, starting in 2024.
  • Standard deductions substantially increased to $14,600 in 2024 ($29,200 if married filing jointly, $21,900 if head of household).
  • Again for 2024, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.

Preparing your taxes is a year-long event, not just a one-day conquest. Staying organized throughout the year will help ensure that none of your deductions or contributions are overlooked or forgotten this time next year. We’re happy to work with your tax professional to be sure your financial plan aligns with your tax strategy, so please don’t hesitate to connect us!