As 2024 draws to a close, it’s crucial for individuals to make financial preparations to put themselves in the best position heading into the new year. Here are some tips to help jumpstart your taxes.
Analyze and Assess
Start by reviewing your budget and expenditures. Analyze where you spent more or less than anticipated and adjust your budget for the upcoming year. This review can help identify areas where you might save more or reallocate funds to meet new financial goals.
Assess your contributions to retirement accounts such as 401(k)s, traditional IRAs, and/or Roth IRAs. For 2024, you have until the tax filing deadline in April 2025 to make contributions to an IRA for the current tax year. Increasing your contributions enhances your retirement savings and may provide tax benefits.
“I recommend contributing to and funding one’s retirement accounts to the maximum annual amount,” says David Karimian, financial advisor at Prime Wealth Management – Ameriprise Financial in Tulsa. “Different retirement accounts have different deadlines, so know the deadline for your account and contribute the maximum as soon as possible.”
Another habit to get into is reflecting on your financial goals for the upcoming year. Whether you’re saving for a major purchase, building an emergency fund or reducing debt, having clear goals will guide your future financial decisions and budgeting.
Tax Preparations
Gather and review your income records and deductible expenses. This includes W-2s, 1099s and receipts for deductible expenses like medical costs, mortgage interest and student loan interest. Understanding what deductions you can claim and ensuring you have proper documentation is critical for accurate tax filing.
If you have flexible spending accounts (FSAs) or health savings accounts (HSAs), use these funds before the end of the year, especially if they are subject to “use-it-or-lose-it” rules. Also, review any carryover provisions for FSAs, if applicable, and make sure you’re getting the most out of your accounts.
“Contributions for HSAs, for example, go into the account pre-taxed and [can be used] tax free,” Karimian says. “It’s also possible to invest [HSA contributions] and the growth of those investments are tax free. An HSA is one of the best accounts that one can have and people should be making sure that they take advantage of that.”
Additionally, make sure to evaluate your tax withholding(s) for the year. If you find that you owe a significant amount of taxes, or alternatively, if you’re getting a large refund, it may be wise to adjust your withholding to better match your tax liability and avoid surprises next year.
Impact of Charitable Giving on Taxes
Contributions to qualified charitable organizations that are made by Dec. 31st may be deductible from your taxable income for the year. Keep accurate records, obtain receipts for all donations and ensure they are in good condition. If you’re over 70 ½, consider making a Qualified Charitable Distributions (QCD) from your IRA. This can directly satisfy your required minimum distributions (RMDs) and exclude the distribution from taxable income, which could reduce your overall tax liability.
“People over age 70 ½ are typically taking money out of their retirement account(s) for various reasons,” Karimian says. “One reason could be they need the money to live on, others may make withdrawals for tax advantages, or, if they’re subject to required minimum distributions, those dollars could be donated to a charity and become non-taxable to the investor and the charity, and do count toward the minimum distribution.”
Resources for Financial Planning
It’s a great idea to consult with a certified financial planner or advisor who can provide personalized advice based on your individual financial situation.
“The tax firm or certified public account that prepares one’s taxes typically has a worksheet that goes through any examples that have taxable implications,” Karimian says. “As you go through that worksheet, you’re checking off the things that apply to your situation.”
If you file your own tax returns, utilizing tax preparation software can streamline the process. Websites like the IRS.gov, financial news outlets and personal finance blogs often provide valuable insights, as well.
