ST. CROIX INSIGHTS
Election Season is Over—Now Let’s Focus on Your Finances!
Election Day is over and we can finally stop seeing political commercials every 10 seconds. Now it’s time to start thinking ahead about our finances. With a new administration taking shape in our nation’s capital, big tax changes could be in store for 2025. Reach out if you like us to keep you updated on changes.
Here are 10 sensible year-end financial strategies:
1. Maximize Charitable Deductions
Generally, the tax law allows donors to deduct the full amount of their charitable donations within generous limits. Deductions for contributions of long-term capital gain property (such as appreciated securities held for more than one year) are limited to 30% of adjusted gross income (AGI). Deductions for all other contributions (including contributions of cash) are limited to 60% of AGI.
- Strategy: “Bunch” your charitable donations in a year you’re likely to itemize. If you don’t itemize and claim the standard deduction, you get no tax benefit.
- Tip: Donations charged to a credit card in 2024 are deductible this year, even if paid off in 2025.
2. Take Advantage of Home Energy Credits
Claim two types of home energy credits for qualified expenditures.
- Strategy: Understand all rules and limits to maximize benefits.
- Energy Efficient Home Improvement Credit: 30% of costs, up to $1,200 annual limit. Special items like heat pumps have a $2,000 limit.
- Residential Clean Energy Credit: 30% of installations like solar panels. No dollar limit.
- Tip: The home must be your residence.
3. Harvest Capital Losses
Turn market dips into tax savings.
- Strategy: Review your taxable portfolio and sell underperforming assets.
- Tip: Short-term losses offset short-term gains taxed at higher rates. Long-term gains are usually taxed at 15-20%.
4. Avoid the AMT Trap
The Alternative Minimum Tax (AMT) can impact many taxpayers.
- Strategy: Assess your exposure and shift tax preferences into 2025 if needed.
- Tip: If your regular bracket exceeds 28%, consider accelerating AMT income into 2024. Consult your tax advisor first.
5. Fund Home Improvements Wisely
Post-TCJA, interest deduction for home equity loans or lines of credit is suspended (unless the loan is used to improve the home) from 2018 through 2025.
- Strategy: Use a home equity loan to fund home improvements that may qualify as deductible acquisition debt.
- Tip: This applies to a primary residence and one additional home (e.g., vacation home).
6. Avoid RMD Penalties
Take required minimum distributions (RMDs) from retirement accounts if aged 73+.
- Strategy: Arrange RMDs before January 1, 2025, to avoid a 25% penalty on missed withdrawals.
- Tip: Beneficiaries of inherited accounts must take RMDs over a 10-year period.
7. Offset Passive Losses
Passive losses can only offset passive income.
- Strategy: Invest in income-generating passive activities to absorb losses.
- Tip: Actively participating in rental activities allows up to $25,000 in losses to offset regular income (phase-out starts at $100,000 AGI).
8. Accelerate EV Tax Credits
Consider buying an electric vehicle (EV). Boy, those Tesla’s are really nice… hard to drive in our Minnesota and Wisconsin winters though.
- Strategy: Purchase an EV or plug-in hybrid for up to a $7,500 credit if income requirements are met.
- Tip: Lower-income filers may get up to $4,000 for used EVs.
9. Improve Your Tax Health
Itemize unreimbursed medical expenses above 7.5% of AGI.
- Strategy: Schedule discretionary visits if you might qualify. Postpone if not.
- Tip: Include dependent expenses toward the deduction threshold.
10. Prepay for Education Credits
Claim education credits by prepaying tuition for early 2025.
- Strategy: Maximize the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC).
- Tip: You can’t claim both credits for the same student.
It’s wise to start year-end planning now to stay ahead of any potential changes. Want more information about these strategies? Reach out and let’s talk.
Election Day is over and we can finally stop seeing political commercials every 10 seconds. Now it’s time to start thinking ahead about our finances. With a new administration taking shape in our nation’s capital, big tax changes could be in store for 2025. Reach out if you like us to keep you updated on changes.
Here are 10 sensible year-end financial strategies:
1. Maximize Charitable Deductions
Generally, the tax law allows donors to deduct the full amount of their charitable donations within generous limits. Deductions for contributions of long-term capital gain property (such as appreciated securities held for more than one year) are limited to 30% of adjusted gross income (AGI). Deductions for all other contributions (including contributions of cash) are limited to 60% of AGI.
- Strategy: “Bunch” your charitable donations in a year you’re likely to itemize. If you don’t itemize and claim the standard deduction, you get no tax benefit.
- Tip: Donations charged to a credit card in 2024 are deductible this year, even if paid off in 2025.
2. Take Advantage of Home Energy Credits
Claim two types of home energy credits for qualified expenditures.
- Strategy: Understand all rules and limits to maximize benefits.
- Energy Efficient Home Improvement Credit: 30% of costs, up to $1,200 annual limit. Special items like heat pumps have a $2,000 limit.
- Residential Clean Energy Credit: 30% of installations like solar panels. No dollar limit.
- Tip: The home must be your residence.
3. Harvest Capital Losses
Turn market dips into tax savings.
- Strategy: Review your taxable portfolio and sell underperforming assets.
- Tip: Short-term losses offset short-term gains taxed at higher rates. Long-term gains are usually taxed at 15-20%.
4. Avoid the AMT Trap
The Alternative Minimum Tax (AMT) can impact many taxpayers.
- Strategy: Assess your exposure and shift tax preferences into 2025 if needed.
- Tip: If your regular bracket exceeds 28%, consider accelerating AMT income into 2024. Consult your tax advisor first.
5. Fund Home Improvements Wisely
Post-TCJA, interest deduction for home equity loans or lines of credit is suspended (unless the loan is used to improve the home) from 2018 through 2025.
- Strategy: Use a home equity loan to fund home improvements that may qualify as deductible acquisition debt.
- Tip: This applies to a primary residence and one additional home (e.g., vacation home).
6. Avoid RMD Penalties
Take required minimum distributions (RMDs) from retirement accounts if aged 73+.
- Strategy: Arrange RMDs before January 1, 2025, to avoid a 25% penalty on missed withdrawals.
- Tip: Beneficiaries of inherited accounts must take RMDs over a 10-year period.
7. Offset Passive Losses
Passive losses can only offset passive income.
- Strategy: Invest in income-generating passive activities to absorb losses.
- Tip: Actively participating in rental activities allows up to $25,000 in losses to offset regular income (phase-out starts at $100,000 AGI).
8. Accelerate EV Tax Credits
Consider buying an electric vehicle (EV). Boy, those Tesla’s are really nice… hard to drive in our Minnesota and Wisconsin winters though.
- Strategy: Purchase an EV or plug-in hybrid for up to a $7,500 credit if income requirements are met.
- Tip: Lower-income filers may get up to $4,000 for used EVs.
9. Improve Your Tax Health
Itemize unreimbursed medical expenses above 7.5% of AGI.
- Strategy: Schedule discretionary visits if you might qualify. Postpone if not.
- Tip: Include dependent expenses toward the deduction threshold.
10. Prepay for Education Credits
Claim education credits by prepaying tuition for early 2025.
- Strategy: Maximize the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC).
- Tip: You can’t claim both credits for the same student.
It’s wise to start year-end planning now to stay ahead of any potential changes. Want more information about these strategies? Reach out and let’s talk.