Ten Considerations to Maximize Year-End Gifting and Tax Planning for 2024

Co-written by Meghann Smith Senior Analyst, LMC Family Office

Co-written by Faye R. Strobel, CPA, CTP Senior Business Manager, LMC Family Office

As the year draws to a close, family offices and high-net-worth individuals are focusing on optimizing tax efficiency. Strategic planning ensures fully leveraging available tax benefits that remain compliant with IRS regulations. With the December 31, 2024 deadline approaching, now is the time to finalize year-end strategies.

1. Maximize Annual Gift Tax Exclusion

The annual gift tax exclusion allows someone to give up to $18,000 per recipient in 2024 without requiring the filing of any gift tax returns or using any portion of a person’s lifetime exclusion. Married couples can combine their exclusions to give up to $36,000 per recipient.

Effective Ways to Utilize the Exclusion:

• Cash or Checks: Deliver and deposit funds by December 31, 2024. Make sure to retain proof of transfer. These gifts can be used for education expenses or to pay for medical expenses.
• Trust Contributions: Gifts to irrevocable trusts can reduce a taxable estate and protect assets for beneficiaries.
• 529 Plans: Fund education savings while potentially receiving state tax benefits.
• Custodial Accounts: Use UTMA or UGMA accounts to transfer assets to minors.

2. Tax Loss Harvesting: Reduce Capital Gains Tax

If investments have lost value, tax loss harvesting can offset capital gains and reduce the tax bill.

Steps to Implement:

• Identify Losses: Review underperforming investments.
• Sell Strategically: Use losses to offset gains or reduce up to $3,000 of ordinary income annually.
• Carry Forward Losses: Excess losses can be carried forward indefinitely.
• Reinvest Thoughtfully: Avoid the wash sale rule by not repurchasing the same or substantially identical investments within 30 days.

3. Max Out Retirement Contributions and Consider Roth Conversions

Contribute to retirement accounts before year-end to reduce taxable income and grow savings.

Contribution Strategies:

• Employer-Sponsored Plans:
  • 401(k) Limit: Up to $23,000 in 2024 (or $30,500 if 50+). **50+ extra $7,500 contribution is allowed in 2024.**
  • Employer Match: Contribute enough to receive full employer matching funds.
  • Review Contributions: Increase contributions before December 31 to lower your 2024 tax liability.
• Traditional and Roth IRAs:
  • Contribution Limit: Up to $6,500 (or $7,500 if 50+).
  • Roth Conversions: Consider converting a Traditional IRA to a Roth IRA to benefit from future tax-free growth, especially if the taxpayer expects to be in a higher tax bracket later.
• SEP IRAs: Self-employed individuals can contribute up to 25% of net earnings (max $69,000 for 2024). Contributions can be made until the filing deadline, including extensions.
• Health Savings Accounts (HSAs):
  • Limits: $4,150 (individuals), $8,300 (families), plus a $1,000 catch-up for 55+.

4. Leverage the Qualified Business Income (QBI) Deduction

The QBI deduction allows owners of pass-through entities to deduct up to 20% of qualified business income.

Year-End Strategies:

• Increase W-2 Wages: Boost wages to meet QBI requirements.
• Invest in Property: Acquire or improve assets before year-end.
• Adjust Income Timing: Defer or accelerate income to stay below phase-out limits.
• Consider Business Structure: Evaluate the type of entity for maximum QBI benefits.

5. Maximize Social Security Benefits

Optimize Social Security benefits and manage related taxes effectively.

Key Points:

• Wage Base Limit: Pay 6.2% Social Security tax on earnings up to $168,600.
• Earnings Limits: Benefits are reduced if earnings exceed $22,320 before Full Retirement Age (FRA) or $59,520 in the year you reach FRA.
• Plan Your Claiming Strategy: FRA is 66 to 67, depending on your birth year.

6. Quick Wins: Travel, Meals, and Entertainment Deductions

Don’t leave easy deductions behind. Review these potential savings:

• Business Travel: Deduct travel expenses for business related trips.
• Meals: Deduct 50% of business meal expenses; ensure receipts include details of attendees and business purpose.
• Entertainment: While entertainment costs are not deductible, meals during entertainment events may still qualify.

7. Strategize Consulting Income Timing

Adjust the timing of consulting income to achieve tax bracket optimization.

• Take Income in 2024: If higher income is expected next year, recognize income this year.
• Defer Income: If 2025 income will be lower, defer income to reduce 2024 taxes.

8. Estate Planning Considerations

Year-end is a good time to review estate plans to align with financial goals.

• Gifting Strategies: Utilize the annual gift tax exclusion to reduce taxable estate.
• Update Beneficiaries: Ensure all designations are current.

9. Optimize Charitable Giving Strategies

Support causes while maximizing tax deductions.

• Deadline: Make donations by December 31, 2024.
• Qualified Charitable Distributions (QCDs): If 70½ or older, donate directly from your IRA to reduce taxable income.
• Donor-Advised Funds (DAFs): Contribute now, decide later where to allocate funds.

Learn more about year-end charitable planning from the recent article, Year-End Charitable Planning: Key Considerations for Maximizing Your Philanthropy.

10. Take Required Minimum Distributions (RMDs)

Anyone 73 or older is required to take RMDs by December 31 to avoid penalties.

• First RMD Delay: A person during the first year of receiving a required RMD, can defer the first RMD until April 1 of the following year, but this means taking two distributions in one year.
• Roth IRAs: Not subject to RMDs but only when the taxpayer is the original owner.

Plan Ahead with LMC Family Office

Year-end gifting and tax planning are essential for effective management of wealth. By taking action now, taxpayers can achieve financial goals, reduce tax burdens, and support causes important to them.

At LMC Family Office, we’re here to help navigate these strategies with confidence. For more information, contact:

• Faye R. Strobel, CPA, CTP, LMC Family Office Senior Business Manager at fstrobel@lmcas.com
• Meghann Smith, LMC Family Office Senior Analyst at msmith@lmcas.com