Year-End Tax Planning: Key Considerations After the Election

Strategic Steps for Financial Efficiency

The political landscape that we experienced this year created some “sit-and-wait” times that caused many taxpayers’ stress. Now, with the election behind us, it is an ideal time to review and optimize tax planning strategies.  Being proactive on tax planning can lessen surprises during filing and potentially save taxpayers significant money. Below are some items to consider when planning

Expiring TCJA Provisions - 2025

Some of the Tax Cuts and Jobs Act (TCJA) tax provisions are set to expire at the end of 2025, impacting 2026 tax year and beyond, and being informed and aware of these is necessary to maximize the benefits of tax planning. While these will not impact the 2024 tax returns, they are still important to consider for estimates that your tax preparer will be calculating.

A few items currently changing after 2025:

• The standard deduction will revert back to pre-TCJA (estimated to be $16,700 for joint filers, and $8,350 for single – it is currently $29,200 and $14,600, respectively)
• The mortgage interest cap on acquisition debt will return to $1mm – it is currently $750k
• The $10,000 state and local tax (SALT) deduction cap will no longer apply
• The Estate Tax exemption drops closer to $6MM, down significantly from the $13.6MM current exclusion
• The Qualified Business Income (QBI) deduction will go away

Certain tax structures may also become less beneficial, so periodic evaluation can help identify any necessary shifts in entity structure or investment timing.

Accounting Method changes

Corporations and pass-through entities may have opportunities to improve their federal income tax position by strategically adopting or changing tax accounting methods. Your tax preparer should consider accounting method changes that either accelerate/defer deductions and defer/accelerate income recognition (depending on expected tax changes) and explain the tax timing consequences of the change. While these are great short-term, and potentially long-term tax benefits, it may not be best when considering your full financial picture.

Harvest Capital Losses

If you have investments that have declined in value, consider selling them to realize capital losses. These losses can offset capital gains, reducing your overall tax liability. If your losses exceed your gains, you can deduct up to $3,000 of the excess loss against other income. Any remaining losses can be carried forward to future years.

Review Charitable Contributions

Charitable donations can provide significant tax deductions while supporting causes you care about. Consider making charitable contributions before the year ends to maximize your deductions. Keep detailed records of your donations, including receipts and acknowledgement letters from the charities. For substantial donations, consider donating appreciated securities to avoid capital gains taxes.

Plan for Estimated Tax Payments

If you are self-employed or have significant income not subject to withholding, ensure you have made adequate estimated tax payments throughout the year. Underpaying taxes can result in penalties and interest. Review your income and tax payments to date and make any necessary adjustments by January 15^th of 2025.

Consider Estate Planning Strategies

Review your estate planning documents and strategies, especially if there have been significant changes in your life, such as marriage, divorce, or the birth of a child. Potential changes in estate tax laws discussed earlier could impact your planning. Consult with an estate planning attorney to ensure your documents are up to date and your strategies align with current laws.

Review Business Expenses

For business owners, reviewing and maximizing deductible business expenses before year-end can reduce taxable income. Consider purchasing necessary equipment, supplies, or software and paying for professional services or subscriptions in advance. Keep detailed records of all business expenses for accurate reporting.

Utilize Gift Tax Exclusions

The annual gift tax exclusion allows you to give up to $18,000 per person per year without incurring gift taxes or requiring a gift tax returns to be filed. This can be a strategic way to reduce your taxable estate while providing financial support to family members. Ensure you document your gifts and consult with a tax advisor if you plan to make substantial gifts. If married, spouses can elect to split gifts and thus exclude up to $36,000 (for 2024) of gifts to an individual.

Review Your Investment Portfolio

Assess your investment portfolio to ensure it aligns with your financial goals and risk tolerance. Rebalancing your portfolio can help manage risk and optimize returns. Consider tax-efficient investing strategies, such as holding investments for more than a year to benefit from lower long-term capital gains tax rates.

Take Advantage of Education Tax Benefits

If you are paying for education expenses, explore available tax credits and deductions, such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Ensure you keep accurate records of qualified education expenses and consult with a tax advisor to maximize your benefits.

As the year draws to a close, taking these steps can help you optimize your tax situation and achieve your financial goals. Consulting with a tax professional can provide personalized advice and ensure you make the most of available tax-saving opportunities. With careful planning and timely action, you can navigate the post-election tax landscape with confidence.

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