The Taxing Truth: Navigating the Complex 2024 Tax Landscape

The 2024 tax season is upon us, bringing with it the usual mix of confusion, apprehension, and financial burden for many Americans. As a professional investor and trader, I aim to provide clarity and actionable strategies to limit your tax liability and maximize savings. In this post, we’ll explore some of the most impactful options and provisions you can utilize, either proactively during the year or reactively at filing time.

Using Itemized Deductions to Your Advantage

One of the most basic but impactful approaches is maximizing your itemized deductions. The Heavy Weight of Taxes: How Different Tax Burdens Impact Americans Across State Lines outlined the disparities in tax burdens geographically, but itemizing helps limit what you actually owe. Some major categories to focus on include:

Home Mortgage Interest

• You can deduct the interest paid on up to $750,000 in new mortgage debt used to purchase, build, or improve your primary home and/or secondary homes.
• This includes interest from first mortgages, second mortgages, home equity loans, and home equity lines of credit (HELOCs).
• Save monthly mortgage statements to validate interest paid.

State and Local Taxes (SALT)

• Deductible SALT taxes include state income tax, sales tax, and property taxes.
• The SALT deduction cap is $10,000 total for single filers and $5,000 for married filing separately.
• Retain documentation like W-2s (for state tax withholding) and property tax bills.

Charitable Donations

• Get receipts from charitable organizations for all monetary donations to deduct.
• Utilize the charitable donation calculator on the IRS website to substantiate deductions.
• For noncash donations, track fair market values using valuation guides.

Unreimbursed Work Expenses

• If required to use your personal car for work, track mileage and related expenses.
• Other unreimbursed costs like travel, uniforms, union dues, and supplies can be deducted.
• However, this is only beneficial if total expenses exceed 2% of your adjusted gross income.

Always save documentation throughout the year to substantiate these various deductions later. The higher your eligible expenses here, the more beneficial itemizing becomes over the standard deduction.

Harvesting Tax Losses

Another proactive tax strategy for investors is tax-loss harvesting. This involves strategically selling securities at a loss to offset capital gains tax liability. Navigating the Navigable: A Deep Dive into the 2024 Tax Code covers the current capital gains rates and thresholds:

• 0% on long-term gains up to $41,675 for single filers
• 15% on gains between $41,676 and $459,750
• 20% on amounts over $459,751

Tax-loss harvesting provides flexibility in managing exposure to these tiers.

Here is a detailed example:

• In February 2023, you realized $20,000 in long-term capital gains from selling Stock A.
• Later in the year, your position in Stock B declined significantly.
• In December 2023, you sell Stock B at a $15,000 loss.
• That $15,000 loss offsets $15,000 of your previous $20,000 gain.
• Your net capital gain is now only $5,000, keeping you entirely within the 0% long-term capital gains tax bracket.

Harvesting losses to minimize net capital gain exposure is a foundational tax mitigation strategy for savvy investors. This simple approach can generate huge tax savings, especially for active traders and investors.

Contributing to Tax-Advantaged Retirement Accounts

In addition to taxable investing strategies, contributing to tax-advantaged retirement accounts also provides major tax benefits:

401(k) Plans

• The 2024 employee contribution limit is $22,500 with an additional $7,500 catch-up for those 50 and over.
• Employer matching contributions can further grow your balance.
• 401(k) deductions reduce taxable income for the year taxes are filed.

Traditional IRAs

• The 2024 contribution limit is $6,500 plus a $1,000 catch-up.
• Potential tax deduction in contribution year, tax-deferred growth on investments.
• Income limits apply based on access to employer retirement plans.

Roth IRAs

• Same $6,500 annual contribution limit plus $1,000 catch-up.
• No upfront deduction, but tax-free growth and withdrawals in retirement.
• Income phase-outs apply – the ability to contribute phases out between $138,000-$153,000 in 2024 for single filers.

Maximizing contributions across these accounts not only helps you save for the future but can lower your current year tax bill. The table below summarizes the options:

Donating Appreciated Assets

For charitably inclined investors, donating appreciated assets like stocks or mutual funds can provide a powerful one-two tax punch:

• First, you avoid paying capital gains tax you’d incur from selling the assets.
• Second, you can deduct the full fair market value as a charitable donation.

This works because the charity can sell the assets tax-free at the appreciated prices. So you essentially transfer both the pre-tax cost basis and the embedded capital gains to the charity.

For example:

• You purchased 100 shares of Stock C for $5,000 five years ago.
• The current value is now $15,000.
• If you sold the shares, you’d owe capital gains tax on the $10,000 gain.
• Instead, you donate the shares to a charity.
• You avoid tax on the $10,000 gain and get a $15,000 charitable deduction!

Combining tax planning with philanthropic aims is a savvy financial move. Consult with a tax advisor to map out the best approach for your specific situation.

Navigating complex and ever-changing tax codes is challenging, but smart proactive planning and savvy filing strategies can help maximize deductions and shelter income.

Note: This blog post is written by a professional trader and investor based on personal experiences and opinions. It is not intended as financial advice. Always conduct your own research and consult a financial advisor before making any financial decisions.