Individuals waiting until after the presidential election to begin their year-end tax planning election can wait no longer: The votes have been cast, and Dec. 31 is right around the corner.
While there's no sure way to predict what tax policy will entail under the new administration, there are timely strategies wealth holders can leverage now. With 2024 deadlines fast approaching and a tax sunset looming, sitting down with clients before January is more important than ever.
Consider the following checklist when having these conversations.
Estate plans and gifting: Use it or potentially lose it
Much can change over a year, including a family's circumstances or goals, making year-end a critical time to review and update wills, trusts and other estate planning documents. It's also an opportune time to transfer wealth to heirs, especially under the
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Individuals should consider maximizing the current $13.61 million ($27.22 million for married couples) federal estate, gift and generation-skipping transfer tax exemption to transfer wealth and mitigate some of the estate and/or gift tax burdens. Wealth holders should evaluate allocating an increased generation-skipping tax exemption to trusts that are not fully exempt from the generation-skipping tax. Clients may also capitalize on the increased lifetime
Those wishing to transfer wealth to loved ones should also take advantage of the 2024 annual gift exclusion, which allows for tax-free gifts up to $18,000 per individual, or a combined $36,000 per married couple, without counting toward their lifetime gifting exemption. This includes cash gifts and tax-free transfers on behalf of another individual, such as paying school tuition or medical expenses directly to the provider.
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Charitable gifting: Tax-efficient strategies
For clients wishing to pay it forward this giving season, several tax considerations should be factored into their strategies.
Gifts to donor-advised funds may be used to
Additionally, those 70½ years or older may consider making a direct transfer from an IRA to a public charity while avoiding paying taxes on the distribution.
It's important to ensure any charitable contribution meets the strict substantiation rules. Failure to adhere to these has denied charitable deductions
Income tax: Accelerate income or deductions?
Clients have the option to accelerate income into 2024 to avoid potential tax rate increases in 2025. We recommend individuals defer net investment income or reduce
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If a client's itemized deductions will exceed the standard deduction, consider accelerating itemized deductions into 2024 in the 32%, 35% and 37% tax brackets, as they may be capped at a 28% tax benefit in the future. Similarly, consider deferring deductions if there is an expectation they will provide a greater benefit under the potential of higher tax rates.
Lastly, sit down and review
Retirement plans: Maximize contributions and brush-up on RMDs
Forthcoming legislation may limit the size of retirement accounts, making now an ideal time to maximize contributions to 401(k)s as well as to traditional, Roth, simplified employee pension (SEP) and
Traditional IRA holders may also explore converting to a Roth IRA. While this will result in taxable income in 2024, assets will
Ensure clients review retirement account beneficiary designations and are familiar with the latest required minimum distribution rules. If applicable, clients should also take 2024 RMDs from traditional IRAs, SEP and Simple IRAs and most qualified plans.
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Investment considerations: Time for a portfolio checkup?
Year-end — or early in 2025 if the holiday season proves too hectic — is a good time to revisit investments to ensure they maximize tax efficiencies and are aligned with broader wealth goals.
The "nice" list of reasons to rebalance portfolios includes: staying on track with goals whether it be selling overweighted assets; purchasing securities in underweight asset classes or adjusting future investments to compensate.
Individuals may also offset the tax impact of any realized gains taken in 2024 by harvesting losses in the portfolio or realizing gains to offset losses. Any
The election outcome will be instrumental in shaping the future of tax and economic policy in 2025, which makes it all the more important to make a well-thought-out plan for your client today. Now is an important time to review these strategies to ensure alignment with clients' broader financial goals.