2024 Mid-Year Tax Planning | Tax Planning for High-Net-Worth | LTax

To stay on top of your tax obligations, mark these key dates on your calendar for the second half of the year:

• September 16: Q3 estimated tax payments are due. Ensure timely payments to avoid penalties.
• October 15: File your 2023 federal individual income tax returns if you requested an automatic extension.
• December 31:
  • Sell stocks or listed options to realize gains or losses for the year.
  • Take required minimum distributions (RMDs) from Traditional, SEP, and SIMPLE IRAs.
  • Complete any Roth IRA conversions you’re planning.
  • Finalize contributions to 529 College Savings Plans.
  • Ensure all charitable donations or other gifts are completed for the current year.

Get Organized

Preparation is key to effective tax planning. Gather and organize your records to streamline the process for the remainder of the year.

• Collect and keep your records and receipts: This helps identify income sources, track deductible expenses, and aid in preparing an accurate return.
• Notify the IRS of address changes and the Social Security Administration of name changes: Keeping these agencies updated helps avoid potential issues later in the year.
• Create or sign into an IRS online account: View past year federal returns, pending action items, manage communication preferences, make payments, and access other essential services.

6 Mid-Year Tax Planning Strategies

Implementing a strategic approach to tax planning can result in significant savings. Here are six essential steps to consider:

#1 Assess & Estimate Taxable Income

Review your paychecks and other income sources to ensure proper tax withholding. Life events, like marriage, having children, or retiring, can significantly impact your tax situation. For instance, getting married might push you into a higher tax bracket, while the birth of a child could qualify you for additional tax credits.

It is also important to remember that most forms of income are taxable, including unemployment benefits, gig economy earnings, and gains from realized virtual currencies transactions.

You can use this IRS tax calculator to estimate your federal tax withholding for the year.

#2 Adjust Withholdings or Estimated Payments if Required

After estimating your taxable income, you may find that your current withholdings or estimated tax payments need to be revised. Reevaluate and adjust them accordingly to avoid a hefty tax bill and potential underpayment penalties at year-end.

For instance, if you received a mid-year bonus, your withholdings might not cover the additional tax liability. Increasing your withholdings or making an estimated tax payment can help mitigate this risk. Similarly, freelance workers should regularly review their income and make quarterly estimated tax payments to stay compliant.

#3 Plan Health Flexible Spending Arrangements

Health Flexible Spending Accounts (FSAs) are a powerful tool for managing medical expenses and reducing taxable income. FSAs allow you to set aside pre-tax dollars for qualifying medical, dental, and vision expenses.

Since FSAs are typically “use-or-lose,” it’s essential to check your balance and plan how to utilize any remaining funds before the year ends. For example, if you have $500 left in your FSA, consider scheduling routine check-ups, purchasing prescription glasses, or stocking up on eligible health products to ensure you do not forfeit the money.

#4 Maximize Your Deductions Strategy

Review your previous year's tax return to decide whether itemizing deductions or taking the standard deduction was more beneficial. This decision can influence your actions for the current year.

For instance, if you itemized deductions last year and found it advantageous, look for opportunities to increase your deductible expenses this year. Consider making charitable donations, prepaying medical expenses, or paying property taxes early. If you typically have significant medical expenses, consolidating them in one year might help you exceed the standard deduction threshold and maximize your tax savings.

This is also a good time to talk with your tax advisor about any 2024 tax updates that may affect your deductions.

#5 Take Advantage of Lower Tax Rates on Investments

Capital gains from the sale of investments are taxed at different rates depending on your income level. To benefit from lower rates, consider strategic actions like gifting investments to children or grandchildren, which can shift the tax burden to individuals in a lower tax bracket.

For example, parents or grandparents can gift appreciated stocks to their children or grandchildren, who might be in a lower tax bracket, thus reducing the overall tax impact on the family. However, be mindful of the "Kiddie Tax" rules, which apply to unearned income for minors and young adults under certain conditions.

Another strategy involves timing the sale of investments to take advantage of lower capital gains rates. For instance, selling long-term investments held for more than a year generally results in lower tax rates than short-term investments.

#6 Optimize Retirement Plan Contributions & Assess IRA Contributions

Review contributions to your 401(k) and IRA accounts. If your goal is to maximize your retirement savings and reduce taxable income, calculate the amount needed from your remaining paychecks to reach the 2024 contribution limits.

Increasing pre-tax retirement contributions can significantly lower your taxable income. For example, maxing out your 401(k) contributions enhances your retirement savings and reduces your taxable income for the year. If you're over the age of 50, take advantage of catch-up contributions, which allow you to contribute more to your retirement accounts.

Following these tax planning strategies can optimize your financial situation and minimize your tax liability.

More Tax Planning Ideas

In summary, mid-year tax planning provides an opportunity to assess your financial situation and make necessary adjustments. Consulting a tax advisor can further enhance your planning efforts. Summer and early fall are usually quieter times for CPAs and tax advisors, making them excellent times to reach out for assistance.

Remember, timely and informed decisions can lead to substantial tax savings and a more secure financial future. Contact LTax today to schedule a free tax planning consultation or call us at 561.453.1441 and ensure you're on track for the 2024 tax season.