Year-End Tax Strategies for Individuals

 

1.  Add a side or small business. Some personal expenses can be converted to business deductions.  This often reduces taxable income in the first phase of business growth. Most important is to actually start your business. If you don’t have an actual business, organized to make a profit, then you can’t claim business deductions.
2. If you have a small business, consider hiring your child. if done correctly, you can stop giving them an allowance and pay them a wage thru your business instead, making those payments deductible. The job must be age-appropriate, there should be a job description and the payments should be substantiated.
3. A home office, if you’re eligible, allows you to deduct some of your personal expenses, such as utilities, mortgage interest, property tax, hazard insurance, etc.
4. If you have a rental, but your income is too high to deduct rental losses, there may be a solution.  See if you qualify to be a real estate professional.  Classifying as such could also reduce or eliminate the 3.8% net investment income tax. Talk to your tax advisor about qualifications.
5. Renting out part of your home?  You can allocate some of your home expenses to the rental and lower your taxable income. (note that if you rent out your home for less than 14 days, the income is not taxable or even reportable, known as Augusta rule). You can do AirBnB type rentals of all or part of your home and allocate some of the expenses to reduce taxable income.
6. If you find that you don’t qualify for the $250,000 or $500,000 exemption of capital gains on the sale of your home you should check to see if you’re eligible for a ‘partial exclusion’ of the gains.
7. Match up capital gains and losses on your investments.  Gains can be offset against losses to reduce taxable income.  This needs to be done before the end of  year.
8. If you are looking to itemize your deductions but don’t quite have enough, you may be able to bunch your medical expenses and/or your charitable contributions.  If you don’t have enough of either to itemize, consider bunching 2 years into 1.  You can make an extra mortgage payment to claim more of the interest if the extra payment is made before year-end.  Also remember that you have a choice of deducting state and local income tax or general sales tax, whichever is larger.  A high value purchase, such as a car or boat, could result in the sales tax deduction being higher than the state tax deduction.
9. Sometimes, S Corps or partnerships have losses that can’t be claimed in the current year because the loss is higher than the owner’s basis in the company, causing the loss to be limited or disallowed in that tax year.  Such losses are then typically carried over until there is enough basis to claim the loss. However, you might be able to increase your basis enough to claim at least some of the loss by providing a personal loan to your company. This has to be a real loan, with a written note and required payments.
10. Don’t forget your Qualified Business Income Deduction for qualified sole proprietorships, partnerships, S Corporations and rental properties.  This could be as high as 20% of your business profits, though there are income limits and other guidelines that can limit that.
11. Move some of your income to your child so that it will be taxed at a lower rate.  Talk to your tax advisor about how to avoid the kiddie tax if you do this.
12. Contribute to a health savings account.  Contributions are deductible and withdrawals taken for medical expenses are tax-free.  Contributions inside the account grow tax free.  Monies not spent are available for retirement.
13. Contribute to a traditional IRA or a 401(k).
14. Estimated taxes- the tax system is supposed to be a pay as you go system.  If your tax payments don’t keep up with your income, you could end up paying interest on late tax payments and could also end up paying penalties for underestimating tax payments.  This often happens with sole proprietors who don’t make estimated tax payments or the payments are too low.  It also can happen with wage income if withholding is too low relative to income or if a bonus suddenly kicks you into a higher tax bracket.  To avoid this, if your adjusted gross income is under $150,000, you need to have paid in 90% of your current year tax liability or 110% of the tax liability for the year before, whichever is less.
15. Electric Vehicle Credits, if you purchase the vehicle after 4/7/23, you can get a credit of $3750 if the vehicle meets the critical mineral requirement and $3750 if the vehicle meets the battery component requirement or $7500 if the vehicle meets both requirements.  These are the basic rules.  If you buy a heavy vehicle or a used vehicle, you should check to see what specific rules apply to you.
16. EV chargers- tax credit of 30% of the hardware and installation costs.  Maximum credit is $1000.  It’s a one-time credit and nonrefundable.
17. Solar tax credit – the solar panel tax credit for 2024 is 30% of eligible costs.  The credit is nonrefundable.  Home must be in US and you must own the installed panels.
18. 1. The Residential Clean Energy Credit is 30% of the cost of new clean energy property installed in your home.  You can claim the credit for improvements to your owned or rented home but not for investment properties.  If you use a property solely for business, you can’t claim the credit.  If you use your home partly for business, the maximum allowable credit is 20%.
19. There is an additional 30% tax credit available for energy efficient home improvements.  The maximum credit for heat pumps is $1200 while biomass stoves and boilers have an expanded credit limit of $2000.

Good luck, hope these save you some dollars!!

Aurora Financial Services, Inc

303-745-3962