Good morning, happy Monday, happy Cyber Monday, and I hope you had a wonderful Thanksgiving!
“By failing to prepare, you are preparing to fail.”
– Benjamin Franklin
As the holiday season is now in full swing, I would like to take this opportunity to drop a friendly reminder of a few year-end financial planning items. Here are a couple of thoughts when it comes to end of the year financial / tax planning:
- IRA / Roth IRA contributions – these can be made up until April 15, 2024 for 2023, but I always encourage not waiting until the last minute.
- IRA / Roth IRA limits are $6,000 per person per year, that limit is $7,000 per person per year if you are 50 or older.
- Income limits do apply, so if your income is over $108,000 single / $213,000 joint then eligibility to fund Roth IRAs becomes reduced (or potentially eliminated).
- Roth conversions – if your income is lower in 2023 than it likely will be in future years then it might be worth exploring a Roth conversion before the end of the year.
- This creates taxable income in the year of the conversion (2023 in this example) but then all your growth going forward is tax-free.
- Especially if you had a lower income year this strategy enables us to take advantage of lower tax brackets now and have tax-free growth when in higher tax brackets.
- Tax loss harvesting – this idea sells investments at a loss in order to generate a taxable loss and thus a tax benefit.
- This strategy is only for accounts that are not retirement based (in other words, this is not for IRAs)
- We aggressively utilized this strategy last year, but there are still some opportunities in some accounts.
- Tax write-offs are limited to $3,000 per year, if losses exceed that amount then they are carried forward to future years
- Gifting strategies – for 2023 the maximum gift amount is $17,000 per person.
- If seeking to give beyond this there are multiple ways to approach, but since this is a calendar year restriction I want to make sure it’s addressed.
The IRS just released the 2024 tax brackets. A link the official IRS announcement can be found here: IRS provides tax inflation adjustments for tax year 2024 | Internal Revenue Service
Here is a summary for 2024:
| Bracket | Married filing jointly | Single |
| Standard Deduction | $29,200 | $14,600 |
| 10% | $0 – $23,200 | $0 – $11,600 |
| 12% | $23,201 – $94,300 | $11,600 – $47,150 |
| 22% | $94,301 – $201,050 | $47,151 – $100,525 |
| 24% | $201,051 – $383,900 | $100,526 – $191,950 |
| 32% | $383,901 – $487,450 | $191,950 – $243,725 |
| 35% | $487,451 – $731,200 | $243,726 – $609,350 |
| 37% | $731,201 + | $609,350 + |
For comparison point, here are the figures for 2023:
| Bracket | Married filing jointly | Single |
| Standard Deduction | $27,700 | $13,850 |
| 10% | $0 – $22,000 | $0 – $11,000 |
| 12% | $22,001 – $89,450 | $11,001 – $44,725 |
| 22% | $89,451 – $190,750 | $47,726 – $95,375 |
| 24% | $190,750 – $364,200 | $95,376 – $182,100 |
| 32% | $364,201 – $462,500 | $182,101 – $231,250 |
| 35% | $462,501 – $693,750 | $231,251 – $578,125 |
| 37% | $693,751 + | $578,126 + |
One more important note about taxes. The current tax brackets (outlined above) were a part of Donald Trump’s signature legislation Tax Cuts and Jobs Act (TCJA) that passed in December 2017 and went into effect on January 1, 2018. These brackets are scheduled to sunset (AKA expire) at the end of 2025. So, we have roughly 25 months remaining under these brackets before they are scheduled to expire.
Whoever is in Congress and whoever the President is in 2025 is going to have to address these tax brackets. Do they renew? Do they temporarily continue? Do they allow them to expire? Do they start from scratch and write all new brackets? Your guess is as good as mine.
If they take no action (allow them to sunset / expire) then the brackets will change from the current 10%, 12%, 22%, 24%, 32%, 35% & 37% to 10%, 15%, 25%, 28%, 33%, 35%, 39.6%. Except for the 10% bracket, every other tax bracket is higher … a tax increase could be looming! The next election will have a direct impact on your taxable income.
Since each of us only has one vote to cast, my position is to be strategic and intentional with tax planning with the understanding that there is a very real possibility of higher taxes down the road. Planning and preparing now can potentially provide very real tax savings in the future!
We will be discussing these matters individually in our upcoming meetings, but if you would like to discuss any of these items sooner please reach out and I will be happy to schedule a meeting to address before the end of the year.
Thank you for the privilege and honor of serving you. I look forward to a great end to the year and an exceptionally exciting 2024! Make it a great week ahead!