Tag Archives: tax

Year-End Tax Planning Items: What You Need to Know

12/2024

By Stetson Ponder

As we come to the end of 2024, many families and individuals find themselves reflecting on the year that was. A portion of this reflection certainly involves their financial health and ways to improve for the upcoming year. At Cahaba Wealth, here is an overview of tax-planning strategies that we use to ensure our clients are as tax-efficient as possible.

Tax Loss Harvesting

  • In taxable accounts, taking a capital loss can be a strategic way to offset other capital gains that may have occurred over the year.
  • Selling off long-term investments at a loss and reinvesting them in similar positions allows you to “harvest” the negative return while maintaining the integrity of the portfolio.
  • In general, we look for these opportunities during periods of market volatility.
  • We also look for areas where capital gains may be harvested for those in the 0% capital gains tax bracket (those in lower-income filings).

Required Minimum Distributions

  • Those who turn 73 or older this year must take required minimum distributions (RMDs) from their IRA accounts by April 1, 2025.
  • Donating to qualified charities by way of Qualified Charitable Distributions (QCDs) for those 70 ½ years or older is a way to lower your taxable income and maximize your charitable income.
  • At Cahaba Wealth, we work individually with our clients to strategize the best way to disperse each respective account’s RMD.

Roth Conversions

  • With a Roth IRA, contributions are made with after-tax dollars and earnings can grow tax-free. In addition, Roth IRAs do not have RMDs associated with them, allowing your investments a longer time horizon.
  • A Roth conversion involves transferring retirement assets from a traditional IRA, SEP IRA, or 401(k) plan into a Roth IRA.
  • Roth accounts can be beneficial if you expect to be in a higher tax bracket in retirement or if you want to reduce your taxable income in retirement.
  • Roth Conversions should be considered carefully, as these conversions are irreversible and have significant tax implications.
  • If you have questions about your specific situation and whether a Roth conversion may be for you, Cahaba Wealth would be more than happy to help you think through this process.

Retirement Account Contributions

  • Maximizing your contributions to tax-advantaged retirement accounts lowers your taxable income for the year.
  • Contribution limits to IRAs for those under 50 is $7,000 this year and an additional $1,000 for those over 50. This limit includes contributions to both a traditional and a Roth IRA.
  • Contribution limits to 401(k) plans are capped at $23,000 this year for those under 50. “Catch-up” contributions of up to $7,500 are available to those over 50.
  • The contribution limit to SIMPLE IRA plans is $16,000, with an additional $3,500 for those 50 and older.
  • Contributions that can be deducted from SEP IRA plans are limited to either 25% of the employee’s pay or $69,000, whichever is less.

Charitable Giving

  • Donations to qualified 501(c)(3) organizations can be deducted on a tax return.
  • Deciding on a donation amount and charity by year-end enables you to make the contribution and receive the associated tax benefits in the same year.
  • Consider donating appreciated securities to avoid capital gains on highly appreciated assets.

Stay Informed and Prepared

Effective end-of-year tax preparation involves multiple facets, and there is no “one size fits all” answer to any tax situation. Your unique financial situation, goals, and life stage will predicate which strategies are best for you.

Reach Out

At Cahaba, our strategy aims to wholly encompass everything that makes you and your family unique when creating a tailored financial plan. If any of these topics spark your interest or you generally would like more financial guidance, please contact our team.

Sources

  1. https://sites.wf.com/tax-planning-guide-2024
  2. https://www.cnb.com/personal-banking/insights/IRA-limits.html
  3. https://www.schwab.com/learn/story/year-end-portfolio-checkup-5-tax-smart-tips
  4. https://www.capitalgroup.com/individual/planning/retirement-planning/plan-contribution-limits.html
  5. https://privatebank.jpmorgan.com/nam/en/insights/markets-and-investing/ideas-and-insights/5-tax-planning-actions-to-take-before-year-end

Stetson Ponder is a Financial Planning Analyst in the Atlanta office of Cahaba Wealth Management, www.cahabawealth.com.

Cahaba Wealth Management is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by the SEC nor does it indicate that the adviser has attained a particular level of skill or ability. Cahaba Wealth Management is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Content should not be construed as personalized investment advice. The opinions in this materials are for general information, and not intended to provide specific investment advice or recommendations for an individual. Content should not be regarded as a complete analysis of the subjects discussed. To determine which investment(s) may be appropriate for you, consult your financial advisor.

Top 3 Actions to Take if Your Tax Outcome Was Unexpected

4/2024

Receiving a tax refund larger than expected or owing more tax than anticipated can both be surprising. Such scenarios often indicate discrepancies in your tax planning or withholding. Whether you’re puzzled by a hefty refund or a significant tax bill, here are three practical steps to manage and adjust your tax situation for future financial stability.

1. Reassess Your Withholdings

If your tax refund is larger than expected, it could mean that too much tax is being withheld from your paycheck. While a large refund might seem like a boon, it’s essentially an interest-free loan to the government. To optimize your cash flow throughout the year, consider adjusting your withholdings. You can do this by filling out a new W-4 form with your employer to decrease the amount of taxes withheld from your salary. This adjustment will increase your take-home pay, allowing you to invest, save, or spend those funds throughout the year instead of waiting for a lump sum refund.

Conversely, if you owe more tax than you anticipated, this could be a sign that not enough tax is being withheld from your earnings. In this case, you might want to increase your withholdings by updating your W-4 form. For instance, even if you’re married with kids, it may make sense to claim “Single” to ensure more dollars are paid in through payroll. This can help avoid owing a large sum when you file your next tax return, and it can also prevent potential penalties for underpayment throughout the year.

2. Review and Adjust Estimated Tax Payments

For freelancers, self-employed individuals, or those with additional income sources (such as rental income or dividends), large discrepancies in expected tax outcomes may suggest that estimated tax payments need adjustment. If you owe a significant amount, consider recalculating your estimated payments for the current year to better align with your actual income. This proactive approach can help manage cash flows more efficiently and avoid surprises in the next tax season. Conversely, if your payments are too high, reducing them can free up monthly resources for other financial priorities.

3. Consult a Financial Planner and a Tax Professional

Changes in income, life events (like marriage or having a child), or changes in tax law can all affect your tax liability. If you receive a much larger refund or owe more than expected, it may be time to consult with a financial planner and a tax professional. A professional can help you understand why your tax outcome was different than expected, provide guidance on adjusting your withholdings or estimated payments, and help you plan for future tax implications of any major financial decisions you anticipate making in the upcoming year.

In conclusion, an unexpected tax outcome, whether it’s a larger refund or a bigger tax bill, often signals a need for adjustments in your financial planning. By taking these steps, you can ensure that your tax withholdings or payments align more closely with your actual tax liability, avoiding surprises and optimizing your financial strategy for the year ahead. This approach not only helps in better managing your finances but also in making informed decisions that enhance your overall financial well-being.

Cahaba Wealth Management is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by the SEC nor does it indicate that the adviser has attained a particular level of skill or ability. Cahaba Wealth Management is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Content should not be construed as personalized investment advice. The opinions in this materials are for general information, and not intended to provide specific investment advice or recommendations for an individual. Content should not be regarded as a complete analysis of the subjects discussed. To determine which investment(s) may be appropriate for you, consult your financial advisor.

Updates for 2024

12/2023

As the calendar turns to the New Year, taxpayers can anticipate a series of changes in the IRS landscape, ushering in a fresh set of regulations and provisions that will impact both individuals and businesses alike. Here are a few important changes to know ahead of 2024:

Retirement Plan Limits

 2024 Limits2023 Limits
401(k)/403(b)/457(b) Elective Deferrals$23,000$22,500
Traditional and Roth IRA$7,000$6,500
Catch-Up Contribution (plans other than SIMPLE plans)$7,500 (no change)$7,500
SIMPLE Plan Employee Deferrals$16,000$15,500
SIMPLE Plan Catch-Up Contributions$3,500 (no change)$3,500
Plan Max. Annual Contribution – Defined Contribution Plans$69,000$66,000
Maximum Annual Benefit – Defined Benefit Plans$275,000$265,000
Compensation Limit under Section 401(a)(17)$345,000$330,000

Health Savings Account Limits

 2024 Limits2023 Limits
HSA Self-Only Coverage           $4,150$3,850
HSA Family Coverage$8,300$7,750
HSA Catch-Up Contributions (Age 55+)$1,000 (no change)$1,000

Standard Deductions*

 2024 Limits2023 Limits
Single$14,600$13,850
Married Filing Jointly$29,200$27,700
Head of Household$21,900$20,800
*an additional deduction will apply for taxpayers who are age 65+ and/or blind

Other changes for 2024:

  • In addition the changes mentioned above, 2024 will bring revisions to the tax brackets, exemptions and credits, and limitations.
  • A 3.2% cost-of-living adjustment (COLA) will be applied for Social Security retirement and disability beneficiaries.
  • The maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $168,600.

If you’re curious how the new changes will affect your bottom line, we are here to talk about your plan. As always, we appreciate the opportunity to be of service.

We wish you a joyful and fulfilling New Year!

Sources:

https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024
https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000#:~:text=WASHINGTON%20%E2%80%94%20The%20Internal%20Revenue%20Service,up%20from%20%2422%2C500%20for%202023.
https://www.irs.gov/pub/irs-drop/rp-23-34.pdf
https://www.ssa.gov/cola/

Cahaba Wealth Management is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by the SEC nor does it indicate that the adviser has attained a particular level of skill or ability. Cahaba Wealth Management is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Content should not be construed as personalized investment advice. The opinions in this materials are for general information, and not intended to provide specific investment advice or recommendations for an individual. Content should not be regarded as a complete analysis of the subjects discussed. To determine which investment(s) may be appropriate for you, consult your financial advisor.