5 IMMEDIATE Opportunities to Lower Your Taxes...

Taxpayers have plenty to be concerned about in 2024…

Economic uncertainty.

Inflation and interest rates.

A contentious 2024 presidential election that could inject even more uncertainty and market drama.

On top of all that, many of the provisions in the 2017 Tax Cuts and Jobs Act are scheduled to expire next year unless lawmakers extend them.¹ 

What could that mean for your taxes?

• If President Biden is re-elected, his budget could increase taxes on high-net-worth Americans.
• Capital gains tax rates could increase to ordinary income rates, rather than topping out at 20% as they do now.¹ 
• High-income taxpayers could face limits to their retirement contributions and lose the ability to convert after-tax money into a Roth in certain circumstances.²

What can you do?

The current tax rates might be the lowest you’ll see for the rest of your life, and I want you to make the most of them.

It’s more important than ever to make sure you’re taking advantage of every tax edge you possibly can this year. 

Acting now could be critical because you might not have the ability to seize these opportunities in future tax years.

I want to emphasize that this is a limited opportunity to leverage current laws. The 2017 rules are scheduled to expire in 2025 (if they don’t disappear sooner under a new administration), and most taxpayers will see a tax hike.¹

Fortunately, there are strategies you can capture right now to make sure you don’t pay more than your fair share in taxes. But you should act quickly, because they could soon disappear completely. 

This tax-savvy guide is designed for high earners just like you who are concerned about whether their retirement portfolios will start sinking in an uncertain future that could include higher taxes.

If you’re asking yourself questions like:

• How can I best benefit from tax-advantaged accounts right now?
• Is there a way I can make use of my current tax situation, given that my taxes could increase?
• Are there tax-saving opportunities I'm missing out on?
• Is there something in my tax returns that I can use to my benefit?
• Do I have a financial professional who can help me squeeze as much juice out of this tax year as possible?

Keep reading…

Opportunity #1 - Max Out Your Tax-Deferred Accounts in 2024

One of the tax-savviest moves you can make in 2024 is to optimize your contributions—especially before April 15, because it’s your last opportunity to make some last-minute retroactive contributions for 2023 that could immediately lower the taxes you pay.

And the savvy tax moves can go way beyond your retirement plan.

Have you squeezed every ounce of juice from ALL your tax-deferral opportunities?

• HSA contributions if you have a high deductible healthcare plan?
• 529 contributions? You can change the beneficiary of a 529 to yourself in many instances.
• After-tax contributions to your 401(k) if applicable? Some employer retirement plans allow you to contribute additional funds on top of the employer match and your employee deferral contributions.
• Ensuring you have the right self-employment retirement accounts in place?

Critical questions to ask yourself include:

• What tax-deferral opportunities are specifically available to me?
• Which ones do I need to act on before I file my 2023 taxes?
• Can I add after-tax funds to my employer-sponsored retirement plan?
• Am I maxing out all my potential contributions before I file?
• Is there a financial professional who I feel confident discussing these contribution strategies with?

OPPORTUNITY #2 -Prepare Your Portfolio for Expiring Tax Cuts

Have you checked for embedded capital gains in your investments? If so, you may want to consider taking action now, before the tax hammer gets even heavier.

Harvesting them now under a favorable tax regime where the top rate is 20% could be beneficial if capital gains lose their favorable tax treatment in the near future.

The top ordinary income tax rate could rise up to nearly 40%... just about double the current highest capital gains rate.¹

Taxes are just one part of your overall investment picture, but it could offer an opportunity to make tactical investment changes where prudent.

Critical questions to ask yourself include:

• Is my portfolio positioned well for current (and future) tax consequences?
• Should I consider paying capital gains taxes now?
• Do I need to make some investment changes to my portfolio?
• Is it worth freeing up some cash to make purchases I’ve been considering?
• Am I in touch with a financial professional who can consult with me about my capital gains exposure?

OPPORTUNITY #3 - Harness a “Mega-Backdoor” Roth in 2024

Have you maximized your opportunities to create tax-free income? Currently, savvy investors who have the ability to use a mega-backdoor Roth are doing so by adding after-tax contributions to their 401(k)s and then converting to Roth IRAs. 

This strategy could be eliminated forever under future administrations, so if a mega-backdoor Roth strategy sounds interesting, consider it before it’s too late.

With your 2023 tax and investment documents in hand, we can look for favorable Roth conversion opportunities under the current rules.

Not all 401(k) plans allow for this strategy. However, if you have pretax money that you put in any type of retirement account, you may still want to convert some of it to a Roth (in moderation). The entire amount of the conversion is taxable income to you, but it may still make sense in view of your overall tax strategy.

• This could be a good time to convert (with a lower tax rate) since tax rates may rise in the near future.
• Consider how much you can convert without pushing yourself into a higher tax bracket.
• Reducing your pretax money also means that you’re reducing your future Required Minimum Withdrawals (RMDs), since Roth IRAs aren’t subject to these taxable withdrawals.

Critical questions to ask yourself include:

• Do I have access to additional after-tax contributions to my employer-sponsored retirement plan?
• Does the mega-backdoor Roth technique make sense for my overall portfolio?
• Do I have a financial professional who can help me navigate Roth conversions in a smart way?

OPPORTUNITY #4 - Plan to Bundle Up and Save in 2024

Under current tax laws, it’s harder to use itemized deductions to save on your taxes. The standard deduction for taxpayers who are married filing jointly is $29,200 and $14,600 for single filers in 2024.³ That puts the bar a little higher each year, but savvy taxpayers know how to combine deductions to make it past the standard deduction threshold.

2024 and 2025 may be critical years for this technique as we don’t know what will happen to deductions if current laws expire.

How can you use this opportunity in 2024? Now’s the perfect time to take a look at last year’s expenses and plan ahead for the following opportunities:

• Bundle up and make several years’ worth of charitable deductions this year.
• If possible, plan medical procedures for this year rather than wait until next year, to meet the 7.5% of AGI floor for medical expenses.
• Tax-savvy note: Items such as long-term care insurance premiums and home modifications for aging in place are medical expenses that may help you reach the 7.5% AGI.

Critical questions to ask yourself include:

• Will I be able to reach the floor of 7.5% AGI for medical expenses this year so I can deduct them?
• What other deductions could I bundle along with my charitable contributions?
• Are there other deductions that I could capitalize on this year?
• Do I know a financial professional who can guide me through a strategy for bundling deductions?

OPPORTUNITY #5 - Maximize Your (Current) Tax Bracket

Depending on what happens when current tax laws expire, it’s possible that you’re experiencing the lowest tax bracket of your life.

If that’s the case, then it makes sense to maximize the amount of income you have this year without pushing your income into the next higher tax bracket.

Yes, it could mean paying more in tax this year than you would otherwise. And that's not fun. But paying tax on the highest income in your current tax bracket could mean creating less of a tax exposure compared to when your tax bracket (and marginal tax rate) are higher.

With your 2023 documents in hand, it’s critical to carefully coordinate a strategy with your CPA and financial professional to avoid unforeseen complications.

You might want to consider these potential strategies:

• Roth conversions
• Capital gains harvesting (only if they make sense in light of your overall investment strategy)
• Accelerating income into this year

Critical questions to ask yourself include:

• Should I be concerned about my tax rates increasing in the future, since not all taxpayers will face higher taxes in the next administration?
• Does it make sense to fill up my income tax bracket this year?
• Do I have a strategy for maximizing what could potentially be my lowest tax rate for several years to come?
• Is there a financial professional in my circle who can help me analyze my tax situation?

Find Your Tax-Saving Avenues in 2024 Before They Vanish

You’re a high earner who’s worked hard and deserves to pay no more than your fair share. And right now, with all the market and political uncertainties, it’s very hard to know what the future may hold.

There are currently opportunities for tax savings––but they could disappear at any time. Many are expected to expire in 2025, making tax strategies especially critical this year.

Some of these maneuvers are a little more complex and require the help of knowledgeable professionals to make sure that you don’t end up on the wrong side of your current tax bracket—or the IRS, for that matter.

In addition to developing the strategy, you also need to execute it at the right time. We don’t know exactly when these opportunities will expire; and when they do, some of them may disappear forever.

You’ve already started to build a significant fund for your retirement years, and by consulting with competent specialists, you can keep more of it rather than handing it over to the IRS.

You’ve made a wise choice by reading through this guide to find out what opportunities you could be missing out on. Take the next step by contacting us for your complimentary 1:1 Tax Opportunities Session today. Or, find time on the calendar below to schedule a 15 minute call with one of our financial advisors:

Sources

1. https://crsreports.congress.gov/product/pdf/R/R47846
2. https://www.asppa.org/news/biden-budget-resurrects-%E2%80%98build-back-better%E2%80%99-retirement-plan-revenue-raisers
3. https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024