Those of us who shop on December 24th know that we are not likely to find the perfect gift. Many items will be sold out. The same is true for taxpayers who wait until the last minute to shop for tax reductions. Still, there are always some last-minute items we can pick up. Here are a few on Tom’s list for those of you who may be last-minute tax benefit shoppers.
- Charitable Donations – You can donate right up until December 31st and receive the same tax benefit as if you had donated on January 1st. When you donate, consider donating highly appreciated property, such as stocks or cryptocurrencies. When you do, you not only receive a deduction for the value of the property donated, you also avoid capital gains taxes on the items you donate. This is a legal 2-1 deal on tax benefits.
- Credits – Look for credits you can receive either for charitable donations or investments. Many states allow dollar for dollar credits against state income tax for donations you make to qualified charities. There may also be some solar or wind energy credit deals still available for investment. While Tom always recommends looking at the investment before the tax benefit, there are some of these benefits that are so good that just the tax benefits produce a return on investment. Be careful, of course, that the credits and investment are legitimate and not tax scams.
- Harvesting losses – if you have some stocks or crypto in your portfolio that have lost money since you purchased them, consider selling them. Remember that stocks have a 31-day rule for repurchasing them, so don’t sell stocks you think will go back up in value in the next 30 days. Cryptocurrency does not have this same “wash sale” rule, so you can sell and buy back the next day.
- Vehicle purchases – If you are planning on buying a car or truck early next year, consider buying it now. You will get bonus depreciation on a car and/or Section 179 deduction on a truck or SUV weighing more than 6,000 lbs. Please DO NOT buy a vehicle just to save on taxes. You are still paying at least 60% of the purchase price yourself.
- Pay 2025 expenses now – If you had a good year this year, consider prepaying expenses in December that you might otherwise have paid next year. This will allow you to deduct those expenses in 2024 instead of waiting for 2025 and especially helps if you are in a higher tax bracket in 2024 than you will be in 2025. One specific example would be prepaying your CPA for next year’s fees 😊.
- Defer income to 2025 – Similar to prepaying expenses is deferring income. This can be done through pension or profit-sharing plans, 401(k) plans or IRAs. You can also wait until January to close on a deal. Just remember that cash in the pocket is always better than tax deferral. What you cannot do is hold checks. If you have the check, you are taxable on it whether or not you deposit it.
- Consider a rollover of your IRA or 401(k) to a Roth – If you are in a low bracket this year because of a tough business year, consider recognizing additional income now in the form of a rollover from a taxable IRA or 401(k) to a Roth IRA or 401(k). This way you pick up the income in a lower tax bracket and don’t pay tax on future earnings.
These are truly last-minute tax opportunities for last-minute tax benefit shoppers. Better than any of these is to get with your CPA and discuss what you can be doing for 2025. Planning, like shopping, always gets easier and more successful when you have more time. More time equals more opportunities to save and to invest. Happy Holidays!!!
Want to learn more about how you can make way more money and pay way less in tax? Book a call with the team at TFW Advisors® today!