Hi Friendos,
Today we are 6.5 weeks from Thanksgiving and 10.5 weeks from Christmas; most companies have open enrollment for benefits in November. Pretty soon you will be busy with holiday activities and obligations and lose the will to engage in boring calculations – or you might spend all your $ on gifts, travel, and merriment.
By the time you are working on your tax return next spring, it will be too late to engage in most activities that can decrease your 2024 tax bill. Now is the perfect time for tax planning!
First up: retirement savings.
Consider whether you should increase your contributions to tax-advantaged accounts. If you have a W-2 job, you have multiple remaining paychecks this year, so if you are not already maxing your 401k or other workplace retirement saving plan, think about increasing your contributions for the rest of the year. Mechanically you should be able to implement this on a website portal (the norm these days) or by getting in touch with HR.
- Most people should prioritize “traditional” accounts over “Roth” accounts. See this prior newsletter.
- You can contribute to an IRA and a workplace retirement plan and an HSA. See this prior newsletter and this one.
If you have an HSA, you can also up contributions before the end of the year. HR can potentially help you do this via payroll deductions (preferred method that avoids payroll taxes), or you can fund your HSA account directly.
- As I have said before, I think of HSAs as a type of retirement account due to the possibility of investing funds that sit inside the account. See this prior newsletter.
- If you are limited in how many $ you can save and invest, I would prioritize maxing out the HSA over maxing other retirement accounts. See this newsletter.
Second: charitable giving.
You can consider different approaches to giving that may have beneficial tax effects like bunching (grouping multiple years’ of donations into a single calendar year), and/or use of a donor advised fund. See this prior newsletter. Establishing a donor advised fund and moving appreciated shares into one can take multiple weeks, so don’t snooze on this if you want to get the process started.
Third: timing revenue and expenses of businesses you own.
If you are self-employed, you may have some control over when you receive revenue and will incur expenses. Consider whether you will lower your tax bill by changing the timing from this year to next year or vice versa. For example, if you (unfortunately) had a low profit year this year, but expect things to turn around next year, consider delaying an expense until next January, when you may be in a higher marginal tax bracket.
Naturally there are many other tax-planning techniques such as Roth conversions, harvesting capital gains or losses, or purchasing solar panels that receive tax credits, just to name a few. Consider what may apply to your own situation (or meet with me to do a review) and rock the tax code like your everyday billionaire!
-Stephanie
Frequently Taxed Questions 