As a New York Mets fan (yes, I am a masochist), I am excited about Juan Soto's free-agent signing. While Soto brings game-changing talent to the Mets' lineup (he is talking about the start of a Mets Dynasty. Imagine that!), strategic tax planning can be equally an impactful game-changer for your client's financial future.
With the year quickly ending, let us look at some ways you can help your clients hit the tax year 2024 financial home run with these year-end tax strategies.
Building an All-Star Lineup for Year-End Tax Strategies
First Base: Maximize Retirement Contributions
Just as Soto consistently delivers at the plate, traditional retirement accounts reliably reduce taxable income. Remind your clients that 401(k) and 403(b) contributions must be made by December 31, 2024, with a limit of $23,000 and $30,500 for those 50 and older. Also, traditional IRAs and back-door Roth conversions should be considered to offer flexibility, with contributions accepted until April 15, 2025.
Second Base: Strategic Charitable Giving
The Mets did not hesitate to make a big move when the opportunity arose. Similarly, clients aged 70½ or older can make impactful plays through Qualified Charitable Distributions (QCDs). In 2024, they can donate up to $105,000 directly from their IRAs to charities. This strategy serves as a double play as it satisfies Required Minimum Distributions while avoiding the tax impact on their adjusted gross income.
Third Base: Tax-Loss Harvesting
Even the best baseball teams must make strategic trades. Similarly, selling underperforming investments to offset gains can be a smart tactical move. Your clients can offset up to $3,000 of ordinary income ($1,500 for married filing separately) with investment losses, carrying forward any excess to future years. This is how you build a tax farm system for future tax minimization impact.
Shortstop: Gift and Estate Planning
Just as the Mets are planning for both immediate impact and a long-term World Series winner, your clients should consider their legacy. In 2024, they can gift up to $18,000 per person ($36,000 for married couples) to unlimited beneficiaries without affecting their lifetime estate tax exemption. Like a well-executed sacrifice bunt, these gifts may further their estate planning goals while reducing their taxable estate.
Catcher: Roth Conversions
With tax rates currently at a low point and potentially rising in the future as we may need to scramble to handle the deficit, converting traditional retirement accounts to Roth IRAs now might be as strategic as signing Francisco Lindor before free agency prices increase. This move could provide tax-free growth and withdrawals in retirement, tax-free inheritance by your client’s beneficiaries, and ten years of tax-free growth for them as well.
Call the Dunham Business Development Team at (858) 964 – 0500 for strategies for using a donor advised fund to take some of the edges off of the taxes due when this strategy is implemented.
Outfielders: Itemized Deductions
For those exceeding the standard deduction ($29,200 for couples, $14,600 for singles), itemizing could be as impactful as a power-hitting outfielder. Medical expenses, mortgage interest, state taxes, and charitable contributions all support this strategy. But if your client is charitably inclined but barely hitting the point of itemizing their taxes or not hitting that point, consider “bunching” multiple years of charitable donations into a donor-advised fund in 2024.
The Designated Hitter: Crushing Capital Gains with Charitable Remainder Trusts
Just as Juan Soto steps up to the plate as the Mets' designated hitter for maximum impact, a Charitable Remainder Trust (CRT) serves as your power hitter for clients facing substantial capital gains. Like Soto's ability to consistently deliver both power and a high on-base percentage, a CRT eliminates capital gains tax at the point of sale while creating potential lifetime income.
If your client has $2 million in appreciated stock with a $200,000 cost basis, donating these assets to a Charitable Remainder Trust will be like winning the Triple Crown. They avoid immediate capital gains tax, receive an upfront charitable deduction, and leave money for their donor-advised fund or charity.
The Pitching Staff: A Game Plan for Tax Relief
In addition to strong hitting, the Mets will need strong arms in their bullpen and dependable starting pitching
Here are some additional strategies that you might consider as the client’s manager to help them end the 2024 tax year victorious.
Maximizing Home Office Deductions
Just as the Mets optimize their home-field advantage at Citi Field, your clients can maximize their home-office benefits. Like building the perfect ballpark dimensions, proper home office planning requires precise measurements and documentation:
- Measure the exact square footage used exclusively for business
- Track direct expenses (dedicated phone lines, office supplies)
- Calculate proportional expenses (utilities, insurance, property taxes)
- If your client maximized the state and local tax deductions, have them speak to their CPA about prorating part of the home loan interest for business purposes.
- Document internet usage percentages for business
- Plan home improvements that directly benefit the office space
Batting Against the Net Investment Income Tax (NIIT)
The 3.8% Net Investment Income Tax is like facing a tough closer in the ninth inning. Here is how your client can hit the walk-off homer.
- Keep modified adjusted gross income below $200,000 (singles) or $250,000 (married)
- Group business activities to qualify as material participation
- Time investment sales across tax years
- Use installment sales to spread income
Energy Credits
Like bringing in your setup pitcher in the eighth inning, timing is crucial for energy credits:
- Solar panel installation credits. See https://www.irs.gov/credits-deductions/residential-clean-energy-credit
- Electric vehicle charging stations. See https://www.irs.gov/credits-deductions/alternative-fuel-vehicle-refueling-property-credit
- Energy Efficient Home Improvement Credit: These include exterior windows and skylights, doors, insulation, and air-sealing materials or systems. For more information and other home improvement credits. Please see https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit
Bottom of the Ninth: Tax Time is Running Out
Time is running out for tax year 2024, and with less than two weeks remaining in the year, your clients need to focus on these now.
World Series are tough to come by, but the Mets' careful planning can help them achieve their ultimate goal. Your clients need to help you review their current tax planning to ensure their team is ready to win the World Series against the IRS on April 15, 2025.
Disclosures:
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance. All examples are hypothetical and are for illustrative purposes only.
Information contained in the materials included is believed to be from reliable sources, but no representations or guarantees are made as to the accuracy or completeness of information. This document is provided for information purposes only and should not be considered as investment advice.
Federal and state laws and regulations are complex and subject to change, which can materially impact your results.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
Charitable deductions at the federal level are available only if you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy or completeness of the information provided. Dunham Trust Company cannot guarantee that such information is accurate, complete, or timely; and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Although the trust itself is a tax-exempt entity, the trust income distributed to beneficiaries is taxable, according to terms dictated by the U.S. Internal Revenue Code and accompanying U.S. Treasury regulations.
Income tax consequences for the donor can be complex, depending on the individual situation. All or some of the income from the trust may be taxed at ordinary income rates, but part may be taxed at lower capital gains tax rates, or may even be tax-free, for some years.
Dunham & Associates Investment Counsel, Inc. is a Registered Investment Adviser and Broker/Dealer. Member FINRA / SIPC. Advisory services and securities offered through Dunham & Associates Investment Counsel, Inc.