The following article is an excerpt from our 2024 Year-End Tax-Planning Strategies report. To read the entire publication, please visit PayTaxesLater.com/2024TaxReport.
“Before you blow-off reading this article, consider how hard it was to earn $1,000 at work and how easy it is to cut your taxes by $1,000 or tens of thousands or even more by applying some of its advice. That said, if you are like me, you won’t read our 2024 Year-End Tax-Planning Strategies beginning to end but will look for the topics you are most interested in reading. The report’s entire Table of Contents is listed inside this newsletter on page 2.”
— Jim Lange
2024 Year-End Tax-Planning Strategies, Table of Contents:
Roth IRA Conversions
Estate Tax Exclusion
Individual Tax Brackets
What’s New for 2024?
Employers’ Share of a Retirement Plan Contribution Can Be Roth
Other Provisions
Home Improvement Credits
Vehicle Credits
Itemized Deductions
Gaming the Standard Deduction Allowance vs. Itemizing Deductions
Bunching Strategy
Bunching Charitable Donations
Required Minimum Distributions (RMDs) in 2024
A Helpful Tip
Alert
Caution
Important Early Thought for 2025
Medical Expenses
State and Local Tax (SALT) Deductions
Planning Tip
Qualified Business Income Deduction for Business Owners
Planning Note
Defer Income and/or Accelerate Expenses
Tax Loss Harvesting
Tax Gain Harvesting
More Roth IRA Conversion Details
Friendly Caution
Next Step
Medicare Tax
Let’s Examine Ways to Reduce your AGI Before the End of 2024
Higher 401(k)/403(b) Contribution Limits
Planning Note
Make a Tax-Deductible IRA Contribution
Planning Note
While It Lasts
Caution
Tax Loss Harvesting
The Hidden Tax Trap
Caution
Maximize your HSA Contribution
Planning Note
Funding Self-Employed Retirement Plans
Increase Tax-Favored Income
Reduce Business or Rental Real Estate Income
Important Note
Capital Gains and Losses
Dealing with Stock Loss Carryovers (in the Year of Death for a Surviving Spouse)
Zero Percent Tax on Long-Term Capital Gains
Consider this Strategy
Hidden Gem
Caution
Step-Up-In-Basis Rules
Taxes on Social Security Income
Increase in Social Security Benefits for Delayed Retirement
Estate and Gift Tax Opportunities
Gifting
Miscellaneous Year-End and Other Tax Reduction Strategies
IRA Contributions
Harvesting Ordinary Income
Making Trust Distributions
Pennsylvania 529 Plan Contribution Deduction
Grandparents
529 Plan Changes
Kiddie Tax Planning
Utilize Your Home Office
Caution
Modifications to Depreciation Limits on Automobiles
Employee Business Expenses
Charitable Giving
Caution
Tax Tip for Coaches (Who Still Itemize their Charitable Deductions)
Inherited IRAs
Helpful Tip
Identity Theft Affidavit
New Corporate Transparency Act (CTA) Filing Requirement
Final Thoughts
Roth IRA Conversions
We generally like to think in terms of a long-term Roth IRA conversion plan by doing a series of Roth conversions over a number of years. That said, the immediate issue is: should you do a conversion between now and the end of the year?
Over the last few years, we have emphasized the importance of the looming sunset of the provisions included in the Tax Cuts and Jobs Act (TCJA) of 2017. The implications were tax rates were going up in 2026 so hurry up and do Roth conversions before tax rates revert to their 2017 levels. Now, we are modifying our recommendations in light of the recent election results. We are looking at the incoming Republican Trifecta (President, Senate, and the House) as an opportunity to perform more Roth conversions over a longer period of time, possibly until the end of 2028 or later vs. the previous 2025 year. We are also considering the impact of the estate and gift tax exemption limits remaining the same during the next administration through 2028 vs. the previous sunset in 2026.
We are not market timers and prefer our investment colleagues make investment recommendations. Nobody rings a bell when the market hits a high or low point. That said, after taking everything that President-elect Trump has said and looking at his non-traditional cabinet choices, it is a fair bet there will be volatility in the market in the years to come. You may be tempted to wait for a market dip to do a Roth conversion. However, there isn’t much time to wait if we are talking about a 2024 conversion. Also, please remember the conversion for 2024 must be accomplished in 2024, not April 2025 like a Roth IRA contribution.
By making a series of Roth conversions in the years 2024 through possibly 2028, you may position yourself to save significant tax dollars by reducing your required minimum distributions (RMDs) since there are no RMDs required on Roth IRA accounts. Also, there would not be any taxes owed on the portfolio income earned inside the Roth accounts. The money that you would be using to pay the tax on the Roth conversion would not be there, potentially reducing capital gains taxes, and net investment income, your medical expense deduction may be increased, and your IRMAA premium charges may be reduced as a result of a solid Roth conversion plan (not for the year of the conversion, as Roth conversions increase your IRMAA premiums).
Many of our clients think they need to do a significant Roth conversion to make a difference on their overall retirement and estate plan. Instead, it may be smaller Roth conversions over a longer time horizon that can still make a significant difference in your overall planning. Please do not automatically negate the positive impact Roth IRA conversions can make for you. It’s important to test the numbers first before making an informed decision. The best and most complete Roth IRA conversion discussion we have written and what Burton Malkiel calls the best discussion of Roth IRA conversions he has ever seen can be found in Retire Secure for Professors and TIAA Participants on pages 293-325. More information about Roth conversions can be found later in this article.
Estate Tax Exclusion
Before we knew the election results, for many wealthy taxpayers, the sunset of the current estate and gift tax provision provided the greatest concern. We now believe the likelihood of changes in the near-term future estate tax and gift tax provisions is low. For 2025, the federal and gift tax limit increases to $13.99 million per individual ($27.98 million for married couples). We no longer believe the estate and gift tax provisions will return to their pre-TCJA levels of approximately $6.8 million per individual ($13.6 million for married couples).
The annual gift tax limit for 2024 is $18,000 per donee ($36,000 for split gifts) and has been increased to $19,000 for 2025 ($38,000 for split gifts). If you have a large estate in excess of $13.99 million per individual ($27.98 million for married couples), there are a lot of things you can do, but most are variations of a gift.
Individual Tax Brackets
Some of the likely changes to become tax law with the upcoming Republican Trifecta is the individual tax brackets staying the same through 2028 or later, keeping the higher standard deduction, and the elimination of the State and Local Tax (SALT) deduction or increasing the limit from the current $10,000 limit or doubling the limit for joint filers.
Consideration should also be given to the reduction or elimination of some of the energy efficiency tax credits introduced in the Inflation Reduction Act. It is too early to comment on some of the tax reductions or eliminations mentioned during the campaign trail including no taxation on Social Security income, Tip income or Overtime income.
Since we are big proponents of planning, we encourage you to consult with your advisory team (professional tax preparer and estate attorney) to develop a solid plan to combat the possibility of these upcoming changes.
What’s New for 2024?
• 529 Plan to Roth IRA rollovers allow beneficiaries of 529 plans to roll over up to a lifetime maximum limit of $35,000 to a Roth IRA. The 529 plan must have been established for at least 15 years, and the rollovers are subject to the annual Roth IRA contribution limits. The beneficiary must have earned income up to the rollover amount. Surprisingly, the rollover is not restricted by the income limits imposed upon individual Roth IRA contributions.
• As in 2023, Roth contributions are now permitted in SIMPLE and SEP plans.
• Required Minimum Distributions from Roth accounts from employer-sponsored plans, including 401(k)s, 403(b)s, and governmental 457(b) plans are now eliminated while the employee is still living. Previously, annual RMDs applied to these Roth accounts, but not Roth IRAs.
• While heirs of an inherited IRA from a decedent who died in 2020 or later will not incur a penalty for missed RMDs in the inherited account in 2024, the beneficiary must still empty the account by the original 10-year deadline.
• Spousal beneficiaries who leave the retirement account in the decedent’s name are now permitted to use the Uniform Lifetime Tables to calculate their RMDs if they choose to keep the account in the decedent’s name for any reason. Previously, the surviving spouse had to evaluate the tradeoffs between an inherited account and a spousal rollover account. This option reduces the consequences of making the incorrect decision. We still generally prefer a spousal rollover option.
• We do not usually recommend distributions from retirement plans, but with the passing of SECURE Act 2.0, an expansion of penalty-free withdrawals, including emergency personal expense distributions up to $1,000 are now permitted. There are restrictions around the distribution relating to necessary personal or family emergency expenses and only one distribution may be made every three years unless the distribution has been repaid. Penalty free distributions in case of domestic abuse, terminal illness, or due to qualified disasters are also now permitted. That said, we still don’t like premature distributions from an IRA if there is any other money that can be used.
Employers’ Share of a Retirement Plan
Contribution Can Be Roth
The option of employers adding a change to their Plan document to allow the employer matching contributions to be contributed into a Roth vs. a Traditional Pre-Tax account for employer-sponsored plans has been extended to year 2026 due to the administrative burden of implementing the change. This is a great new law, that has been botched administratively. Hopefully, this will change, and your employer will adopt it.
Other Provisions
• Increased required minimum distributions age to age 73 if you were born between 1951 and 1959, and age 75 if you were born in 1960 or later.
• There is no age limit for IRA contributions, meaning anyone working who has earned income may contribute to a traditional IRA regardless of their age.
• Catch up provisions for employees 50 and older remain at $7,500. Catch up provisions for employees ages 60-63 are $11,250 per year. If you can afford this, it is a no-brainer.
• Previously slated for 2024, but now deferred until 2026, higher income employees who are age 50 and older who make catchup contributions to employer-sponsored plans, must contribute the catch-up contributions in the form of a Roth vs. a Traditional Pre-Tax account. This is for employer-sponsored plans only (not IRAs).
• A disabled person had to be disabled before age 26 to have an ABLE account established. Now the disability must have begun before age 46 in order to qualify for an ABLE account effective in the year 2026.
• Beginning in 2023, if you are age 70½ or older, you can make a one-time charitable distribution of $50,000 to a Charitable Remainder Trust (CRAT/CRUT) or a charitable gift annuity. These rules are complicated, and we strongly encourage you to consult your tax professional before considering this option. This is an expansion of the type of charity that can receive a QCD. Forgetting the change for a minute, subject to rare exceptions, we love QCDs as the most tax-effective method of making a charitable donation.
Home Improvement Credits
As part of the Inflation Reduction Act passed in August 2022, there are some key energy improvement credits to consider.
The Residential Clean Energy Credit is now 30% of the cost to install qualifying electric, water heating, or temperature control systems for your home that use solar, wind, geothermal, biomass
or fuel cell power. The credit also applies to battery storage technology with a capacity of at least three kilowatt hours. The 30% credit is in place through 2032, and then drops to 26% in 2033, 22% in 2034, and fully expires in 2035.
If you are thinking about installing alternative energy systems in your home utilizing renewable energy sources, the next few years is the best time to consider these changes while the 30% credit is available. It is not clear whether these credits will be available with the upcoming President-elect change in 2025.
The Energy-Efficient Home Improvement Credit changed effective in the 2023 year. If you recall, previously, there was a lifetime credit limitation of $500 and the credit was capped for many items, including windows, water heaters, etc. The credit has now increased to 30% for the cost of certain types of insulation, boilers, air-conditioning systems, windows, and doors installed in your residence. The $500 lifetime limit has been increased to a $1,200 annual limit. The $1,200 annual limit is decreased to $500 for exterior doors and $600 for exterior windows and skylights.
If you are installing a biomass stove or hot water boiler or an electric or natural gas heat pump in your home, the annual limit is $2,000. Should you consider a home energy audit, you can receive a credit of up to $150 for the cost of the home audit. It is important to plan your home improvements to possibly maximize your credits by installing home improvements in December and January to capitalize and maximize the energy efficient tax credits.
Vehicle Credits
If you are in the market for a new electric vehicle, you may want to consider the Clean Vehicle Credit which provides a maximum credit of $7,500 per vehicle. The manufacturers’ sales threshold limit is gone. There are not any limitations on the number of vehicles you can purchase to be eligible for the credit, so if you and your spouse are both looking to purchase a new vehicle, your combined credit could be $15,000.
There are three tests to qualify for the credit. If you make too much, no credit; if the vehicle costs too much, no credit, and if it was manufactured outside of North America, no credit. To be eligible for the full $7,500 credit, electric must meet a critical minerals requirement and a battery component requirement. If only one of the two factors is met, the credit is reduced to $3,750. Eligibility for full credit for electric vehicles is based upon the vehicle’s battery capacity. If you are in the market for a new vehicle and want to qualify for the $7,500 Clean Vehicle Credit, we encourage you to check the website, fueleconomy.gov/feg/tax 2023.shtml, to make sure the year/model is eligible for the credit.
The Clean Vehicle Credit is disallowed if the manufacturer’s suggested retail price is more than $80,000 for SUVs, vans, and pickup trucks and $55,000 for all other vehicles. For used vehicles, the price cap decreases to $25,000. The credit is disallowed if your Modified Adjusted Gross Income (MAGI) for the current or preceding tax year exceeds $300,000 for married filing jointly or surviving spouses, $225,000 for head of household, and $150,000 for all other taxpayers for new vehicles. For used vehicles, the credit is disallowed if your MAGI for the current or preceding tax year exceeds $150,000 for married filing jointly or surviving spouses, $112,500 for head of household, and $75,000 for all other taxpayers.
Beginning in 2024, taxpayers purchasing eligible vehicles can elect to transfer the Clean Vehicle Tax Credit to the dealer, provided the dealer meets the registration, disclosure, and other requirements. The discount does not affect your taxes, but you still must report the transaction on your tax return through Form 8936. If you receive the rebate and you are not eligible for it, meaning your income was higher than you had originally reported, you will be required to pay the rebate back as part of your income tax filing.
In the last two sections, remember these are credits, not deductions meaning a dollar-for-dollar reduction of your taxes.
Itemized Deductions
A higher standard deduction allowance exists in 2024 ($14,600 for individuals, $16,550 if 65 or over, $29,200 for married filing jointly, and $32,300 if 65 or over). There are also significant limitations on what may be included for itemized deductions. For those taxpayers who typically never itemized their deductions, the increase in the standard deduction is welcome. For itemizers, particularly if you pay high real estate taxes and state and local income taxes, the change in itemized deductions generally hurt you.
Gaming the Standard Deduction Allowance
vs. Itemizing Deductions
• Bunching Strategy: Bunching your itemized deductions is a technique that involves accumulating deductions, so they are high in one year and low in the following year. You can benefit from the “bunching” strategy. It’s very typical for most taxpayers to wait until tax time to add up everything and use the higher of the standard deduction or their itemized deductions. It should be easier for most taxpayers to project their total itemized deductions before the end of 2024 due to the elimination of certain itemized deductions and limitations on others [State and Local Tax (SALT) deduction]. By being proactive, you can time the payments of tax-deductible items to maximize your itemized deductions in one year while using the standard deduction the following year.
To read the remainder of our Year-End Tax-Planning Strategies, please visit:
Disclaimer: Lange Accounting Group, LLC offers guidance on retirement plan distribution strategies, tax reduction, Roth IRA conversions, saving and spending strategies, optimized Social Security strategies, and gifting plans. Although we bring our knowledge and expertise in estate planning to our recommendations, all recommendations are offered in our capacity as CPAs. We will, however, potentially make recommendations that clients could have a licensed estate attorney implement.
Asset location, asset allocation, and low-cost enhanced index funds are provided by the investment firms with whom Lange Financial Group, LLC is affiliated. This would be offered in our role as an investment advisor representative and not as an attorney.
Lange Financial Group, LLC, is a registered investment advisory firm registered with the Commonwealth of Pennsylvania Department of Banking, Harrisburg, PA. In addition, the firm is registered as a registered investment advisory firm in the states of AZ, FL, NY, OH, and VA. Lange Financial Group, LLC may not provide investment advisory services to any residents of states in which the firm does not maintain an investment advisory registration. Past performance is no guarantee of future results. All investing involves risk, including the potential for loss of principal. There is no guarantee that any strategy will be successful. Indexes are not available for direct investment. If you qualify for a free consultation with Jim and attend a meeting, there are two services he and his firms have the potential to offer you. Lange Accounting Group, LLC could offer a one-time fee-for-service Financial Masterplan. Under the auspices of Lange Financial Group, LLC, you could potentially enter into an assets-under-management arrangement with one of Lange’s joint venture partners.
Please note that if you engage Lange Accounting Group, LLC and/or Lange Financial Group, LLC for either our Financial Masterplan service or our assets-under-management arrangement, there is no attorney/client relationship in this advisory context.
Although Jim will bring his knowledge and expertise in estate planning to this workshop and to the meetings, it will be conducted in his capacity as a financial planning professional and not as an attorney. This is not a solicitation for legal services.