Thursday, June 13, 2024

Looking Ahead to Your 2024 Tax Return

 

With the 2023 tax filing deadline in the rear view mirror, now is a good time to look ahead to 2024 taxes that you will owe in April 2025. 


In a recent article for the Rutgers Cooperative Extension newsletter, VISIONS, I described key features of your tax return to review for future financial planning including income sources, tax write-offs, changes in tax filing status, tax rates and marginal tax brackets, tax withholding, retirement plan contributions, and capital gains and losses.




This post extends that discussion with a description of seven key steps to take to plan for your 2024 tax return due in 2025.

 

Estimate Your 2024 Income- Project your income from all sources, including wages/salary, investments, rental income, business income, etc. Consider any expected changes such as salary increases, job changes, side hustles, or expected increases or decreases in income.

 

Review Your Tax Withholding- Make sure your tax withholding aligns with estimated 2024 income. Adjust your withholding (and/or estimated quarterly payments), if necessary, to avoid an under-withholding tax penalty. The IRS withholding estimator can help make this calculations.

 

Organize Receipts and Records- Start organizing receipts and documents related to investment transactions, required minimum distribution (RMD) withdrawals, tax credits, and more. Good record-keeping throughout the year will make it easier to prepare your 2024 tax return.

 

Maximize Retirement Plan Contributions-Contribute as much as you can afford, up to the maximum allowable amount, to tax-advantaged retirement accounts (e.g., 401(k) plan). Not only does this help you save for retirement, but it can also reduce your taxable income for the year.

 

Consider Tax-Efficient Investments- Consider strategies to minimize taxes. For example, you can hold investments for a year and a day or longer to qualify for lower long-term capital gains tax rates or consider tax-free investment vehicles such as Roth accounts and municipal bonds.

 

Do Strategic Tax Planning- Explore tax planning strategies that may apply to your situation, such as bunching deductions, contributing to a Health Savings Account (HSA), Roth IRA conversions, or utilizing tax-loss harvesting to offset capital gains.

 

Consult a Tax Professional- Consider consulting with a tax professional or financial advisor for personalized guidance and advice. If you have complex financial situations or anticipate significant changes in your tax situation for 2024.

 

Finally, it is not too early to begin thinking about income taxes in 2026, when the Tax Cuts and Jobs Act (TCJA) is set to expire. If Congress does not extend the TCJA or pass a new tax law before January 1, 2026, 2017 tax rules will apply, indexed for inflation. 


As a result, there will be an increase in tax rates (e.g., 12% rate becomes 15%), standard deductions will halve, the child tax credit will revert to $1,000, and the $10,000 limit on itemizing state and local taxes (SALT) will end. Readjusting to old tax rules and tax rates and making sure that tax withholding is correct will take some advance planning.


This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

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