The Best Year-End Tax Deductions for Investors

As the end of the year approaches, investors have a valuable opportunity to take proactive steps to maximize their tax savings. With careful planning, investors can offset gains, reduce taxable income, and potentially boost their financial outcomes for the coming year. Here’s a detailed guide on year-end tax deduction strategies tailored for investors:

Harvesting Losses to Offset Gains

If you have investments that have underperformed, consider selling them to take advantage of "tax-loss harvesting." This strategy allows you to offset capital gains with capital losses, effectively reducing your taxable income. If your losses exceed your gains, you can apply up to $3,000 of those losses to your ordinary income, and any remaining losses can be carried forward to future tax years. This approach not only helps reduce this year’s tax liability but also offers a potential cushion against future gains.

Maximize Retirement Account Contributions

Contributing the maximum allowed to your 401(k), 403(b), or other employer-sponsored retirement accounts is one of the most effective ways to reduce taxable income. If you have a traditional IRA, these contributions are often deductible, which lowers your taxable income for the year. The contribution limits for 2024 are $7,000 for IRAs (with a $1,000 catch-up for those 50+) and $23,000 for 401(k)s (with an additional $7,500 catch-up). Contributions to Roth accounts aren’t deductible, but they offer tax-free growth, making them valuable for long-term tax efficiency.

Charitable Contributions

If you’re planning to give to charity, this can be an advantageous way to reduce your tax bill. Cash contributions to qualified organizations can generally be deducted up to 60% of your adjusted gross income (AGI). If you have highly appreciated assets, such as stocks, consider donating them directly. Not only will you avoid capital gains taxes on the appreciation, but you’ll also receive a deduction for the asset’s fair market value if you itemize deductions.

Health Savings Account (HSA) Contributions

For those with a high-deductible health plan (HDHP), contributing to an HSA is an excellent way to reduce taxable income. HSA contributions are tax-deductible, grow tax-free, and withdrawals for qualified medical expenses are also tax-free. The maximum contribution for 2024 is $3,850 for individuals and $7,750 for families, with a $1,000 catch-up for those over 55. HSAs provide a triple tax benefit, making them one of the most tax-advantageous accounts available.

Deducting Investment-Related Expenses

While the Tax Cuts and Jobs Act of 2017 limited the deductibility of certain investment-related expenses for individuals, there may still be opportunities to write off costs related to investment income. If you’re managing a small business, certain advisory fees, software expenses, or subscription costs related to financial news and data may be deductible. It’s essential to consult a tax professional to verify which expenses may apply to your specific situation.

Timing for Other Deductions

For investors, timing can be everything. If you’re considering making a large deductible purchase or paying deductible expenses, such as property taxes or medical bills, doing so before December 31 can ensure you capture the deduction for 2024. Similarly, if you’re in a position to delay income—such as by postponing asset sales—consider waiting until January to push the tax impact into the following year.

These strategies, when combined, can provide a meaningful reduction in your 2024 tax bill. The tax code is intricate, and every investor’s situation is unique, so consulting with a tax professional is essential to ensure you’re using these deductions effectively. Taking the time to evaluate these options now can pay off significantly when it comes to reducing your tax burden and boosting your financial health for the future.