Basic Numbers You Need to Know

Because many tax benefits are tied to or limited by adjusted gross income (AGI)—IRA deductions, for example—a key aspect of tax planning is to estimate both your 2024 and 2025 AGI. Also, when considering whether to accelerate or defer income or deductions, you should be aware of the impact this action may have on your AGI and your ability to maximize itemized deductions that are tied to AGI. Your 2022 tax return and your 2023 pay stubs and other income- and deduction-related materials are a good starting point for estimating your AGI.
Another important number is your "tax bracket," i.e., the rate at which your last dollar of income is taxed. The tax rates for 2024 are 10%, 12%, 22%, 24%, 32%, 35% and 37%. Although tax brackets are indexed for inflation, if your income increases faster than the inflation adjustment, you may be pushed into a higher bracket. If so, the potential benefit from any tax-saving opportunity is increased (as is the cost of overlooking that opportunity).

Gift Giving

Annual Gift Tax Exclusion: The most commonly used method for tax-free giving is the annual gift tax exclusion, which, for 2023, allows a person to give up to $17,000 ($18,000 in 2024) to each donee without reducing the giver's estate and lifetime gift tax exclusion amount. A person is not limited as to the number of donees to whom he or she may make such gifts. Further, because the annual exclusion is applied on a per-donee basis, a person can leverage the exclusion by making gifts to multiple donors (family and non-family). Thus, if an individual makes $15,000 gifts to 10 donees, he or she may exclude $150,000 from tax. In addition, because spouses may combine their exemptions in a single gift from either spouse, married givers may double the amount of the exclusion to $30,000 per donee. A person may not carry over his or her annual gift tax exclusion amount to the next calendar year. Qualifying tuition payments and medical payments do not count against this limit.

IRA, Retirement Savings Rules for 2024

Tax-saving opportunities continue for retirement planning due to the availability of Roth IRAs, changes that make regular IRAs more attractive, and other retirement savings incentives.
Traditional IRAs: Individuals who are not active participants in an employer pension plan may make deductible contributions to an IRA. The annual deductible contribution limit for an IRA for 2024 is $7,000. For 2024, a $1,000 "catch-up" contribution is allowed for taxpayers age 50 or older by the close of the taxable year, making the total limit $7,500 for these individuals. Individuals who are active participants in an employer pension plan also may make deductible contributions to an IRA, but their contributions are limited in amount depending on their adjusted gross income (AGI). For 2024, the AGI phase-out range for deductibility of IRA contributions is between $77,000 and $87,000 of modified AGI for single persons (including heads of households), and between $123,000 and $143,000 of modified AGI for married filing jointly. Above these ranges, no deduction is allowed. In addition, an individual will not be considered an "active participant" in an employer plan simply because the individual's spouse is an active participant for part of a plan year. Thus, you may be able to take the full deduction for an IRA contribution regardless of whether your spouse is covered by a plan at work, subject to a phase-out if your joint modified AGI is $198,000 to $208,000 ($0 - $10,000 if married filing separately) for 2024. Above this range, no deduction is allowed.

IRA Rollovers: As of 2021, taxpayers may make only one IRA-to-IRA rollover per year. (Direct rollovers from trustee to trustee are not affected.) An attempted rollover after the first will be treated as a withdrawal and taxed at regular rates, plus a possible 10% early withdrawal penalty.  

Spousal IRA: If an individual files a joint return and has less compensation than his or her spouse, the IRA contribution is limited to the lesser of $6,000 for 2022 plus age 50 catch-up contributions, ($1,000 for 2021), or the total compensation of both spouses reduced by the other spouse's IRA contributions (traditional and Roth).  

Roth IRA: This type of IRA permits nondeductible contributions of up to $7,000 for 2024, but no more than an individual’s compensation. Earnings grow tax-free, and distributions are tax-free provided no distributions are made until more than five years after the first contribution and the individual has reached age 59½. Distributions may be made earlier on account of the individual's disability or death. The maximum contribution is phased out in 2024 for persons with a modified AGI above certain amounts: $230,000 to $240,000 for married filing jointly, and $146,000 to $161,000 for single taxpayers (including heads of households); and between $0 and $10,000 for married filing separately who lived with the spouse during the year.  

Roth IRA Conversion Rule: Funds in a traditional IRA (including SEPs and SIMPLE IRAs), §401(a) qualified retirement plan, §403(b) tax-sheltered annuity or §457 government plan may be rolled over into a Roth IRA. Such a rollover, however, is treated as a taxable event, and you will pay tax on the amount converted. No penalties will apply if all the requirements for such a transfer are satisfied.
If you have already made a conversion earlier this year, you have the option of undoing the conversion. This is a useful strategy if the investments have gone down in value so that if you were to do the conversion now, your taxes would be lower. This is a complicated calculation and we should meet to determine what your best options are.

In addition, if you initiated a Roth IRA conversion and then decide it wasn’t the best idea in previous years, you could do a “take back” in the form of a characterization. Due to the Tax Cuts and Jobs Act, you can no longer characterize Roth IRA conversions from SEP IRAs, SIMPLE IRAs, traditional IRAs, 401(k)s, and 403(b)s. If the conversion occurred after October 15, 2018, it cannot be re-characterized.

401(k) Contribution: The §401(k) elective deferral limit is $23,000 for 2024. If your §401(k) plan has been amended to allow for catch-up contributions for 2024 and you will be 50 years old by December 31, 2024, you may contribute an additional $7,500 to your §401(k) account, for a total maximum contribution of $30,000 ($23,000 in regular contributions plus $7,500 in catch-up contributions).

SIMPLE Plan Contribution: The SIMPLE plan deferral limit is $16,000 for 2024. If your SIMPLE plan has been amended to allow for catch-up contributions for 2024 and you will be 50 years old by December 31, 2024, you may contribute an additional $3,000.

Catch-Up Contributions for Other Plans: If you will be 50 years old by December 31, 2024, you may contribute an additional $7,500 to your §403(b) plan, SEP or eligible §457 government plan.

Saver's Credit: A nonrefundable tax credit is available based on the qualified retirement savings contributions to an employer plan made by an eligible individual. Students cannot claim the credit nor can someone who is claimed as a dependent on another individual’s tax return. You must be 18 years old or older to apply for the credit. For 2023, only taxpayers filing joint returns with AGI of $73,000 or less, head of household returns with AGI of $54,000 or less, or single returns (or separate returns filed by married taxpayers) with AGI of $36,000 or less, are eligible for the credit. The amount of the credit is equal to the applicable percentage (10% to 50%, based on filing status and AGI) of qualified retirement savings contributions up to $2,000 depending on your adjusted gross income (reported on your Form 1040 or 1040A).

Required Minimum Distributions: For 2024, taxpayers must take their required minimum distribution from IRAs or defined contribution plans (§401(k) plans, §403(a) and §403(b) annuity plans, and §457(b) plans that are maintained by a governmental employer). 

Maximize Retirement Savings: In many cases, employers will require you to set your 2025 retirement contribution levels before January 2025. If you did not elect the maximum 401(k) contribution for 2024, you can increase your amount for the remainder of 2024 to lower your AGI in order to take advantage of some of the tax breaks described above. In addition, maximizing your contribution is generally a good tax-saving move.

Deferring Income to 2025

If you expect your AGI to be higher in 2024 than in 2025, or if you anticipate being in the same or a higher tax bracket in 2024, you may benefit by deferring income into 2025. Deferring income will be advantageous so long as the deferral does not bump your income to the next bracket. Deferring income could be disadvantageous, however, if your deferred income is subject to §409A, thus making the income includible in gross income and subject to additional tax. Some ways to defer income include:

Delay Billing: If you are self-employed and on the cash-basis, delay year-end billing to clients so that payments will not be received until 2025. 
Interest and Dividends: Interest income earned on Treasury securities and bank certificates of deposit with maturities of one year or less is not includible in income until received. To defer interest income, consider buying short-term bonds or certificates that will not mature until next year. If you have control as to when dividends are paid, arrange to have them paid to you after the end of the year.

Accelerating Income into 2024

In limited circumstances, you may benefit by accelerating income into 2024. For example, you may anticipate being in a higher tax bracket in 2025, or perhaps you will need additional income in order to take advantage of an offsetting deduction or credit that will not be available to you in future tax years. Note, however, that accelerating income into 2024 will be disadvantageous if you expect to be in the same or lower tax bracket for 2025. In any event, before you decide to implement this strategy, we should "crunch the numbers."
If accelerating income, this will be beneficial, here are some ways to accomplish this:

Accelerate Collection of Accounts Receivable: If you are self-employed and report income and expenses on a cash basis, issue bills and attempt collection before the end of 2024. Also see if some of your clients or customers might be willing to pay for January 2025 goods or services in advance. Any income received using these steps will shift income from 2024 to 2025.

Year-End Bonuses: If your employer generally pays year-end bonuses after the end of the current year, ask to have your bonus paid to you before the end of 2024.
 
Retirement Plan Distributions: If you are over age 59½ and you participate in an employer retirement plan or have an IRA, consider making any taxable withdrawals before 2025.
You may also want to consider making a Roth IRA rollover distribution, as discussed above.

Deduction Planning

Individual Deductions
Deduction timing is also an important element of year-end tax planning. Deduction planning is complex, however, due to factors such as AGI levels, AMT, and filing status.

Deduction in Year Paid: An expense is only deductible in the year in which it is actually paid. Under this rule, if your tax rate is going to increase in 2025, it is a smart strategy to postpone deductions until 2025.

Payment by Check: Date checks before the end of the year and mail them before January 1, 2025.

Promise to Pay: A promise to pay or providing a note does not permit you to deduct the expense. But you can take a deduction if you pay with money borrowed from a third party. Hence, if you pay by credit card in 2024, you can take the deduction even though you won't pay your credit card bill until 2025.

Standard Deduction Planning: Deduction planning is also affected by the standard deduction. For 2024 returns, the standard deduction is $29,200 for married taxpayers filing jointly, $14,600 for single taxpayers, $21,900 for heads of households, and $13,850 for married taxpayers filing separately. As you can see from the numbers, for 2024, the standard deduction for married taxpayers is twice the amount as that for single taxpayers. If your itemized deductions are relatively constant and are close to the standard deduction amount, you will obtain little or no benefit from itemizing your deductions each year. But simply taking the standard deduction each year means you lose the benefit of your itemized deductions. To maximize the benefits of both the standard deduction and itemized deductions, consider adjusting the timing of your deductible expenses so that they are higher in one year and lower in the following year. You can do this by paying in 2024 deductible expenses, such as mortgage interest due in January 2025. 

Medical Expenses: For 2024, medical expenses, including amounts paid as health insurance premiums, are deductible only to the extent that they exceed 7.5% of AGI. Beginning January 1, 2019, all taxpayers may deduct only the amount of the total unreimbursed allowable medical care expenses for the year that exceeds 7.5% of their adjusted gross income.
State & Local Tax (SALT) Deduction: This was limited by tax reform, but it has not disappeared entirely. In 2021, you will be allowed to deduct up to $10,000 for money you pay to state and local governments in tax. Property tax is always allowed, and you can elect either income or sales tax depending on which amount is higher.
State Taxes: If you anticipate a state income tax liability for 2025 and plan to make an estimated payment most likely due in January, consider making the payment before the end of 2024. However, too high a payment could lead towards being subject to the AMT.

Charitable Contributions: Consider making your charitable contributions at the end of the year. This will give you use of the money during the year and simultaneously permit you to claim a deduction for that year. You can use a credit card to charge donations in 2024 even though you will not pay the bill until 2025. A mere pledge to make a donation is not deductible, however, unless it is paid by the end of the year. Note, however, for claimed donations of cars, boats and airplanes of more than $500, the amount available as a deduction will significantly depend on what the charity does with the donated property, not just the fair market value of the donated property. If the organization sells the property without any significant intervening use or material improvement to the property, the amount of the charitable contribution deduction cannot exceed the gross proceeds received from the sale. To avoid capital gains, you may want to consider giving appreciated property to charity. Regarding charitable contributions please remember the following rules: (1) no deduction is allowed for charitable contributions of clothing and household items if such items are not in good used condition or better; (2) the IRS may deny a deduction for any item with minimal monetary value; and (3) the restrictions in (1) and (2) do not apply to the contribution of any single clothing or household item for which a deduction of $500 or more is claimed if the taxpayer includes a qualified appraisal with his or her return. Charitable contributions of money, regardless of the amount, will be denied a deduction, unless the donor maintains a cancelled check, bank record, or receipt from the donee organization showing the name of the donee organization, and the date and amount of the contribution. A special provision gives taxpayers the ability to distribute tax-free to charity up to $100,000 from a traditional or Roth IRA maintained for an individual whose has reached age 70½.  

Business Deductions

Equipment Purchases: If you are in business and purchase equipment, you may make a "Section 179 Election," which allows you to expense (i.e., currently deduct) otherwise depreciable business property. For 2024, the allowable deduction is limited to $1,220,000 (much higher than in previous years). In general, under the "half-year convention," you may deduct six months’ worth of depreciation for equipment that is placed in service on or before the last day of the tax year. (If more than 40% of the cost of all personal property placed in service occurs during the last quarter of the year, however, a "mid-quarter convention" applies, which lowers your depreciation deduction.) A popular strategy in recent years is to purchase a vehicle for business purposes that exceeds the depreciation limits set by statute (i.e., a vehicle rated over 6,000 pounds). Doing so would not subject the purchase to the statutory dollar limit, $11,160 for 2019; $11,560 in the case of vans and trucks. Therefore, the vehicle would qualify for the full equipment expensing dollar amount. However, for SUVs (rated between 6,000 and 14,000 pounds gross vehicle weight) the expensing amount is limited to $28,900.

NOL Carryback Period: Most taxpayers no longer have the option to carryback a net operating loss (NOL). For most taxpayers, NOLs arising in tax years ending after 2017 can only be carried forward. The 2-year carryback rule in effect before 2018, generally, does not apply to NOLs arising in tax years ending after December 31, 2017. Exceptions apply to certain farming losses and NOLs of insurance companies other than a life insurance company. Also, for losses arising in taxable years beginning after Dec. 31, 2017, the net operating loss deduction is limited to 80% of taxable income (determined without regard to the deduction).

Bonus Depreciation: The Tax Cuts and Jobs Act law increased the bonus depreciation percentage from 50 percent to 100 percent for qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. The bonus depreciation percentage for qualified property that a taxpayer acquired before Sept. 28, 2017, and placed in service before Jan. 1, 2018, remains at 50 percent. Special rules apply for longer production period property and certain aircraft.

The definition of property eligible for 100 percent bonus depreciation was expanded to include used qualified property acquired and placed in service after Sept. 27, 2017, if all the following factors apply: The taxpayer or its predecessor didn’t use the property at any time before acquiring it. The taxpayer didn’t acquire the property from a related party. The taxpayer didn’t acquire the property from a component member of a controlled group of corporations. The taxpayer’s basis of the used property is not figured in whole or in part by reference to the adjusted basis of the property in the hands of the seller or transferor. The taxpayer’s basis of the used property is not figured under the provision for deciding basis of property acquired from a decedent. Also, the cost of the used property eligible for bonus depreciation doesn’t include the basis of property determined by reference to the basis of other property held at any time by the taxpayer (for example, in a like-kind exchange or involuntary conversion). The new law added qualified film, television and live theatrical productions as types of qualified property that may be eligible for 100 percent bonus depreciation. This provision applies to property acquired and placed in service after Sept. 27, 2017.

Under the new law, certain types of property are not eligible for bonus depreciation in any taxable year beginning after December 31, 2017. One such exclusion from qualified property is for property primarily used in the trade or business of the furnishing or sale of: Electrical energy, water or sewage disposal services, gas or steam through a local distribution system or transportation of gas or steam by pipeline. This exclusion applies if the rates for the furnishing or sale which have to be approved by a federal, state or local government agency, a public service or public utility commission, or an electric cooperative.

 The new law also adds an exclusion for any property used in a trade or business that has had floor-plan financing indebtedness if the floor-plan financing interest was taken into account under section 163(j)(1)(C). Floor-plan financing indebtedness is secured by motor vehicle inventory that in a business that sells or leases motor vehicles to retail customers. The new law eliminated qualified improvement property acquired and placed in service after December 31, 2017 as a specific category of qualified property.

Capitalization v. Expensing for Materials and Supplies and Repairs: Under regulations that went into effect in 2014, a deduction is allowed for materials and supplies that have an acquisition or production cost of $2,500 or less. Also, a de minimis safe harbor states that for repairs to be deductible, among other requirements, the unit of property must cost less than $2,500 per invoice or item substantiated by the invoice for taxpayers with applicable financial statements and $2,500 per invoice for taxpayers without applicable financial statements.

Education and Child Tax Benefits

Child Tax Credit:  The amount that families claiming the CTC can expect to recieve $2,000 per child. The credit is now fully refundable, meaning  you are eligible for the credit even if you don’t owe taxes.  Monthly advance payments for this credit started sending in July 2024. These payments are in advance of this year’s tax filing.  If you’re receiving these monthly payments, your tax refund next year may be smaller.

Credit for Adoption Expenses: For 2024, the adoption credit limitation is $16,810 of aggregate expenditures for each child, except that the credit for an adoption of a child with special needs is deemed to be $16,810 regardless of the amount of expenses. The credit ratably phases out for taxpayers whose income is between $252,150 and $292,150.

Education Credits: Back in 2009, significant changes were put in place for the Hope credit, including a name change to the American Opportunity Tax Credit. Due to legislation in early 2013, these changes continue through 2024. The maximum credit for 2024 is $2,500 (100% on the first $2,000, plus 25% of the next $2,000) for qualified tuition and fees paid on behalf of a student (i.e., the taxpayer, the taxpayer's spouse, or a dependent) who is enrolled on at least a half-time basis. The credit is available for the first four years of the student's post-secondary education. For 2024, the credit is phased out at modified AGI levels between $160,000 and $180,000 for joint filers, and between $80,000 and $90,000 for other taxpayers. Forty percent of the credit is refundable, which means that you can receive up to $1,000 even if you owe no taxes. The term "qualified tuition and related expenses" includes expenditures for "course materials" (books, supplies, and equipment needed for a course of study whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance). One way to take advantage of the credit for 2024 is to prepay the spring 2025's tuition. In addition, if your child's books for the spring 2025 semester are known, those can be bought in 2024 and the costs qualify for the credit for 2024.

The Lifetime Learning credit maximum in 2024 is $2,000 (20% of qualified tuition and fees up to $10,000). A student need not be enrolled on at least a half-time basis so long as he or she is taking post-secondary classes to acquire or improve job skills. As with the Hope (American Opportunity Tax Credit in 2018) credit, eligible students include the taxpayer, the taxpayer's spouse, or a dependent. For 2023, the Lifetime Learning credit is phased out at modified AGI in excess of $116,000-$134,000 for joint filers and of $57,000-$67,000 for single taxpayers.

Coverdell Education Savings Account: For 2023, the aggregate annual contribution limit to a Coverdell education savings account is $2,000 per designated beneficiary of the account. The limit is phased out for individual contributors with modified AGI between $95,000 and $110,000 and joint filers with modified AGI between $190,000 and $220,000. The AGI amounts are not indexed for inflation. The contributions to the account are nondeductible but the earnings grow tax-free.

Student Loan Interest: You may be eligible for an above-the-line deduction for student loan interest paid on any "qualified education loan." The maximum deduction is $2,500. The deduction for 2024 is phased out at a modified AGI level between $140,000 and $170,000 for joint filers, and between $70,000 and $85,000 for individual taxpayers.

Kiddie Tax: The kiddie tax applies to: (1) children under 19 who do not file a joint return; (2) 19-year old children who have unearned income in excess of the threshold amount, do not file a joint return and who have earned income, if any, that does not exceed one-half of the amount of the child's support; and (3) children between the ages of 19 and 24 if, in addition to the above rules, they are full-time students. A parent may elect to include a child’s gross income in the parent’s gross income and to calculate the “kiddie tax.” One if the requirements for the parental election is that a child’s gross income is more than $1,250 but less than $13,800 for 2023. If a child has more than $2,200 for 2023 in interest, dividends, and other unearned income, and the income is not or cannot be reported on a parent’s return by filing Form 8814, part of that income may be taxed to the child at the parent’s tax rate instead of the child’s tax rate. Unearned income is now taxed at the rates paid by trusts and estates. A child’s net earned income is taxed as normal. A child’s net unearned income that exceeds the unearned income threshold ($2,300 for 2022 & $2,500 for 2023) is subject to the kiddie tax and is taxed at the rates that apply to trusts and estates.

Achieving a Better Life Experience (ABLE) Accounts: This is a type of savings account for individuals with disabilities and their families. For 2024, taxpayers can contribute up to $18,000. Distributions are tax-free if used to pay the beneficiary’s qualified disability expenses.

Energy Incentives

Until 2016, tax incentives are available to taxpayers who install certain energy efficient property, such as photovoltaic panels, solar water heating property, fuel cell property, small wind energy property and geothermal heat pumps. A credit of 30 percent is available for the expenditures incurred for such property, except that a cap applies for fuel cell property. The property purchased cannot be used to heat swimming pools or hot tubs. If you have made improvements to your home or plan to by the end of 2024, please contact me to discuss the amount of the credit you may qualify for. The credit for solar electric property and solar water heating property is extended for property placed in service through December 31, 2024, at applicable percentages as described in the statute.

In the case of property placed in service after December 31, 2016 and before January 1, 2020, 30 percent. In the case of property placed in service after December 31, 2019 and before January 1, 2021, 26 percent. In the case of property placed in service after December 31, 2020 and before January 1, 2022, 22 percent.

Business Credits

Small Employer Pension Plan Startup Cost Credit: For 2024, certain small business employers that did not have a pension plan for the preceding three years may claim a nonrefundable income tax credit for expenses of establishing and administering a new retirement plan for employees. The credit applies to 50% in qualified administrative and retirement-education expenses for each of the first three plan years. However, the maximum credit is $500 per year.

Employer-Provided Child Care Credit: For 2024, employers may claim a credit of up to $150,000 for supporting employee child care or child care resource and referral services. The credit is allowed for a percentage of "qualified child care expenditures" including for property to be used as part of a qualified child care facility, for operating costs of a qualified child care facility and for resource and referral expenditures.

Work Opportunity Credit: The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) retroactively allows eligible employers to claim the Work Opportunity Tax Credit (WOTC) for all targeted group employee categories that were in effect prior to the enactment of the PATH Act, if the individual began or begins work for the employer after December 31, 2014 and before January 1, 2020. For tax-exempt employers, the PATH Act retroactively allows them to claim the WOTC for qualified veterans who begin work for the employer after December 31, 2014 and before January 1, 2020. The PATH Act also added a new targeted group category to include qualified long-term unemployment recipients. New Targeted Group – Qualified Long-Term Unemployment Recipient (Hired on or after January 1, 2019). The PATH Act expanded the targeted groups of individuals to include qualified long-term unemployment recipients. A qualified long-term unemployment recipient is any individual who on the day before the individual begins work for the employer, or, if earlier, the day the individual completes Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, is in a period of unemployment that is (i) not less than 27 weeks and (ii) includes a period (which may be less than 27 weeks) in which the individual received unemployment compensation under State or Federal law..

Investment Planning

The following rules apply for most capital assets in 2024:
• Capital gains on property held one year or less are taxed at an individual's ordinary income tax rate.
• Capital gains on property held for more than one year are taxed at a maximum rate of 20% (0% if an individual is in the 15% or 20% marginal tax bracket; 15% for individuals in the 10%, 12%, 22%, 24%, 32%, 35% and 37% brackets).
Continuing from enactment in 2013, a 3.8% tax is levied on certain unearned income. The tax is levied on the lesser of net investment income or the amount by which modified AGI exceeds certain dollar amounts ($200,000 for Single or head of household, $250,000 for Married, filing jointly, and $125,000 for Married, filing separately). Investment income is: (1) gross income from interest, dividends, annuities, royalties, and rents (other than from a trade or business); (2) other gross income from any business to which the tax applies; and (3) net gain attributable to property other that is not attributable to an active trade or business. Investment income does not include distributions from a qualified retirement plan or amounts subject to self-employment tax. This rule applies mostly to passive businesses and the trading in financial instruments or commodities. With this additional tax, the maximum net capital gains rate is 20% in 2024. Because distributions from qualified retirement plans are not subject to the tax, taxpayers may want to invest in retirement accounts, if possible, rather than taxable accounts.

Timing of Sales: You may want to time the sale of assets so as to have offsetting capital losses and gains. Capital losses may be fully deducted against capital gains and also may offset up to $3,000 of ordinary income ($1,500 for married filing separately). In general, when you take losses, you must first match your long-term losses against your long-term gains, and short-term losses against short-term gains. If there are any remaining losses, you may use them to offset any remaining long-term or short-term gains, or up to $3,000 (or $1,500) of ordinary income. When and whether to recognize such losses should be analyzed in light of the possible future changes in the capital gains rates applicable to your specific investments.

Dividends: Qualifying dividends received in 2024 are subject to rates similar to the capital gains rates. Therefore, qualifying dividends are taxed at a maximum rate of 20% (29.6% is subject to the net investment tax). Qualifying dividends include dividends received from domestic and certain foreign corporations. Non-qualifying dividends are subject to ordinary income rates (up to 39.8% (37% income tax rate and 3.8% net investment income tax rate).
Exclusion of Gain Attributable to Certain Small Business Stock: Stock acquisitions that qualify as “small business stock” under to §1202 are subject to special exclusion rules upon their sale as long as a five-year holding period is satisfied. A 50% exclusion applies for stock acquired before August 9 1993, and after February 18, 2009. A 75% exclusion applies for qualified small business stock acquired after February 18, 2009 and before September 27, 2010. A 100% exclusion applies for stock acquired on or after September 28, 2010. For stock acquired in 2019, only 50% of the gain is excluded from gross income (after the five-year holding period is met).
Installment Sales: Generally, a sale occurs when you transfer property. If a gain will be realized on the sale, income recognition will normally be deferred under the installment method until payments are received. So if you are expecting to sell property at year-end, and it makes economic sense, consider selling the property using the installment method to defer payments (and tax) until next year or later.

Selling Your (Underwater) Home: If you are currently underwater on your home and you are considering selling or getting a loan modification, you might want to wait a little longer. Without extending legislation for 2020, qualified mortgage debt relief from your lender discharged before January 1, 2019 will be considered income and taxes will be owed on the amount forgiven. Instead, we’ll be back to the old rules — Internal Revenue Code Section 61[a][12] — and only by declaring bankruptcy or legal insolvency will those forgiven mortgage debt on their principal residence be able to avoid taxes on the amount waived

Social Security: Depending on the recipient's modified AGI and the amount of Social Security benefits, a percentage may be taxed— (up to 50% taxable; Married/Filing jointly $32,001-$44,000 and Single $25,001-$34,000) and (up to 85% taxable; Married/Filing jointly >$44,000 and Single >$34,000). To reduce that percentage, it may be beneficial to defer receipt of other retirement income. One way to do so is to elect to receive a lump-sum distribution from a retirement plan and to rollover that distribution into an IRA. Alternatively, it may be beneficial to accelerate income so as to reduce the percentage of your Social Security taxed in 2024 and later years.

Other Tax Planning Opportunities: We also can discuss the potential benefits to you or your family members of other planning options available for 2024, including §529 qualified tuition programs.

Health Care Planning

Individual Mandate: Starting with the 2024 plan year (for which you’ll file taxes in April 2024 and beyond), the Shared Responsibility Payment no longer applies. Note: Some states have their own individual health insurance mandate, requiring you to have qualifying health coverage or pay a fee with your state taxes for the 2024 plan year. If you live in a state that requires you to have health coverage and you don’t have coverage (or an exemption): You’ll be charged a fee when you file your 2024 state taxes. You won’t owe a fee on your federal tax return. Check with your state or with us to find out if there is a fee for not having health coverage.

Health Care Savings Accounts: For 2024, cafeteria plans can provide that employees may elect no more than $3,050 in salary reduction contributions to a health FSA.

Self-Employed Health Insurance Premiums: Self-employed individuals are allowed to claim 100% of the amount paid during the taxable year for insurance that constitutes medical care for themselves, their spouses and dependents as an above-the-line deduction, without regard to the general 7.5% of AGI floor.

Health Savings Accounts: A health savings account (HSA) is a trust or custodial account exclusively created for the benefit of the account holder and his or her spouse and dependents, and is subject to rules similar to those applicable to individual retirement arrangements (IRAs). Contributions to an HSA are deductible, within limits. For 2024, the annual limitation on deductions for an individual with self-only coverage under a high deductible health plan is $4,150; for an individual with family coverage under a high deductible health plan is $8,300. For 2024, a “high deductible health plan” is a health plan with an annual deductible that is not less than $1,500 for self-only coverage or $3,000 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $7,500 for self-only coverage or $15,000 for family coverage.