
By Elizabeth O'Brien
Nov. 15, 2024
Time is running out to lower your tax bill for 2024 and claim some credits that may be cut in 2025 by President Donald Trump and Republicans in Congress.
Extending the tax cuts that were passed in 2017 is a priority for Trump and congressional Republicans. Many are set to expire at the end of next year. Before then, Trump could push lawmakers to scale back or eliminate tax breaks that he doesn't favor, notably credits for solar and other clean-energy improvements, along with tax credits worth up to $7,500 for electric vehicles.

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"It will be a very interesting 2025 for tax practitioners and their clients," says Miklos Ringbauer, principal of MiklosCPA, a tax-strategy firm based in Southern California.
Many tax moves have a Dec. 31 deadline. Here are some to consider now:
Contribute to Retirement Accounts
Contributions to 401(k)s must be made by Dec. 31 to count for the calendar year. You have until April 2025 to make 2024 contributions to an IRA or health savings account. The maximum that workers can contribute to their 401(k) this year is $23,000 for those under age 50, with an additional $7,500 in catch-up contributions allowed for those 50 and over.
Contributions to tax-deferred accounts are subtracted from your taxable income for the year, lowering your tax bill. However, you must pay income taxes on the money when you withdraw it in retirement.
Many advisors recommend also contributing to a post-tax Roth account. You don't get a tax break on your contributions, but the money can be withdrawn tax-free in retirement. The 401(k) contribution limit applies to all your accounts in aggregate.
Check Your Withholdings
Taxes are supposed to be paid on a pay-as-you-go basis. If you don't pay enough during the year, you could get a surprise bill come tax time, plus an 8% penalty. If you work for a company, make sure you're having enough of your paycheck withheld. The IRS has a tax withholding estimator to help.
Self-employed workers generally have to make quarterly tax payments. Tax estimators online can help you estimate what you owe. It's also a good idea to estimate any capital gains, dividends, and other sources of income that could bump up your taxes unexpectedly.
Consider Tax-Loss Harvesting
The stock market's blockbuster returns this year may translate into big capital gains. Even if you don't sell an appreciated stock, your mutual funds might, and funds are required to pass along gains to investors. If you hold that fund in a taxable account, you may owe the government up to 20% on long-term gains.
Capital losses can offset gains. If you sell a stock that you've lost money on by Dec. 31, you can use that loss against gains. You can claim a deduction of up to $3,000 against your income if there is anything left over after offsetting capital gains, or carry the loss forward to use it against future gains.
One way to sidestep capital-gains taxes is to donate an appreciated stock to a donor-advised fund. These funds allow you to direct the stock to a qualifying charity. You not only save on taxes but also get a tax deduction to use if you itemize your deductions.
Check Out Clean-Energy Credits
Those who buy renewable-energy products for the home, such as solar panels and battery storage, may qualify for the Residential Clean Energy Credit. This offers a dollar-for-dollar reduction of taxes equaling up to 30% of the costs of new, qualified clean-energy property.
The Energy Efficient Home Improvement credit provides a tax credit of up to $3,200 a year for qualifying improvements. Even some insulation is eligible, and you can claim up to 30% of qualified expenses up to the cap, though equipment must be placed into service by Dec. 31.
Tax credits for clean-energy improvements and EVs look vulnerable as Trump and his Republican colleagues on Capitol Hill seek to raise revenue to extend income tax cuts. The Trump administration might also try to make it harder to claim the tax credits through executive actions, without going through Congress.
"If you want to take advantage of that, I'd definitely lock it in," says Robert Dietz, national director of tax research at Bernstein Private Wealth Management.
Remember RMDs
Required minimum distributions, or RMDs, kick in at age 73. If it's your first time taking RMDs, you're allowed to wait until April 1 of the following year to take them. For everyone else, the deadline is Dec. 31.
The RMD amount is based on your year-end account balance as of Dec. 31, 2023, so you can't change that. What you can do is have federal taxes withheld from your RMD, which can help if you neglected to pay, or underpaid, quarterly estimated taxes throughout the year. Depending on their sources of income, some retirees must pay estimated taxes.
Starting next year, most non-spouses who inherited a traditional IRA will have to take RMDs, provided they inherited an account from someone who had begun taking them. You might want to plan ahead, since many pros recommend taking more than the required amount to avoid a big tax hit in year 10, the year in which you have to deplete your account.
Write to Elizabeth O'Brien at elizabeth.obrien@barrons.com
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