As we enter the final stretch of 2024, now is the time to review your year-end planning to-do list. Starting early is the best way to ensure that everything is tied up and done correctly before the new year. Here is a quick checklist to help you sort out whether you and your advisors have work to do before the ball drops.
Income tax planning
As you are probably aware, the tax cuts under the 2017 Tax Cuts and Jobs Act (TCJA) are expected to sunset at the end of 2025. Many of the tax changes will result in an increase in tax rates and loss of certain deductions.
| For more information on how you can make gifts up to the current exemption amount before the opportunity goes away in 2026, read our article, “How Business Owners Can Maximize the Gift Tax Exemption in 2025.” |
If you have significant annual taxable income this year, it would be worthwhile to investigate whether you should accelerate deductions or losses that will offset or reduce your taxable income or postpone the recognition of any income into 2025. Either option requires thoughtful analysis and projections in consultation with your advisors.
Here are some specific year-end income tax planning reminders:
- Harvest tax losses to offset capital gains.
- Make charitable donations to qualified organizations (bonus: consider giving appreciated securities, if held more than one year, instead of cash).
- Consider bunching charitable donations you would usually give over multiple years to ensure you are above the standard deduction.
- Maximize contributions to retirement accounts (e.g., IRA, profit sharing, 401(k), SEP).
- Consider your retirement account distributions: If you are age 73 or younger, consider deferring your required minimum distribution (RMD); if you have reached the age of 73, make sure you take your RMD.
- If you are age 70 ½ or older, consider making a charitable donation to a qualified charity from your IRA. If the donation is made out of your IRA, then the RMD might not be taxable.
- If your income is expected to be lower in 2024 than in typical years and is potentially subject to a lower tax rate, consider converting all or a portion of your traditional IRA to a Roth IRA.
- If you sold nonpersonal real estate this year, work with your advisor to identify replacement property that could qualify for a deferral of tax gain.
- Maximize business expenses to offset income, including purchases that could qualify for bonus depreciation.
- Depending on your state’s requirements, make any necessary pass-through entity tax elections as an effective workaround to the state and local tax (SALT) deduction limitation for businesses.
- Review your federal and state withholding elections before bonuses are paid.
With a narrow Republican majority in the House and Senate, it is believed that Congress will try to pass a new tax bill before the expiration of the Tax Cuts and Job Act at the end of 2025. However, it is still very unclear as to what will eventually be able to be passed. As the year draws to a close, you should still take proactive steps in your financial planning which can significantly affect your tax liability. Working with your advisors in advance can potentially save you taxes down the road.
Estate planning
The fourth quarter is a good time to make sure that your gifts to family members and trusts have been completed and that your estate planning vehicles have been administered properly.
- Make your annual exclusion gifts and send Crummey letters, if necessary. The annual exclusion amount is $18,000 for 2024 and $19,000 for 2025.
- For gifts made and estates of decedents dying in 2025, the exclusion amount will be $13,990,000 ($13,610,000 for gifts made and estates of decedents dying in 2024). Work with your advisors to see if you can potentially gift this amount out of your estate before the end of 2025. This exemption is currently set to sunset in 2025 and will revert to pre-2018 amounts (almost half of this amount) on January 1, 2026. Update your gift log and send your certified public accountant valuation information for preparation of your gift tax return.
- Confirm if any life insurance premiums were paid and if they need to be reported as a gift.
- For life insurance trusts, have the trustee pay insurance premiums directly from the trust account.
- Fund 529 educational plans (some states have a December 31 deadline for receiving a state income tax deduction).
- Review your fiduciaries – trustees, executors, and so forth – and their named successors to ensure that they are still appropriate.
- For grantor retained annuity trusts, monitor to know whether freezing is appropriate and ensure annuity payments are paid on time.
- For new trusts, send a draft to your BBH wealth planner for review as soon as possible.
Year-end is the perfect time to align your charitable giving with your financial goals. By thoughtfully planning your philanthropy now, you not only maximize the impact of your donations but also ensure they complement your overall wealth strategy, creating long-term value for both your family and the causes you care about.
Good housekeeping: Friendly planning reminders for all year long
- If eligible, contribute to your health savings account, which can be used to pay qualified medical expenses.
- Spend remaining funds in your flexible savings account before they expire.
- Under the Corporate Transparency Act, limited liability companies and corporations created or registered to do business in the U.S., as well as foreign companies registered to do business in the U.S., are considered “reporting companies” that must file a beneficial ownership information report with the Financial Crimes Enforcement Network, unless an exemption applies. Work with advisors to determine if you have a filing requirement before January 1, 2025.
- For leases, determine when the next lease payment is due and when the lease needs to be reviewed.
- For intrafamily notes, ensure the interest payments are current and whether refinancing is appropriate. Keep track of all outstanding obligations, including terms and payment requirements.
Routinely reviewing your executors and trustees is a simple but often overlooked task. Your fiduciaries will age and retire, and you want to make sure that they are still the right folks to do the job when the day arrives.
If you have questions about any of these year-end reminders, please do not hesitate to reach out to your BBH relationship team. We are here to ensure that you are ending the year with your affairs in order and are ready to take advantage of the planning opportunities that 2025 might present.
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