As we look ahead to 2024, there is growing concern about potential tax hikes that could impact individuals and businesses. With the changing economic landscape and government policies, preparing proactively for these potential tax increases is essential. This article will explore strategies to minimize the tax impact, emphasize the importance of long-term financial planning, and provide expert advice for navigating tax changes.
Overview of Potential Tax Hikes in 2024
Several proposed tax hikes in 2024 could affect taxpayers. These include increases in income tax rates, capital gains tax rates, and corporate tax rates. Additionally, changes to deductions and credits may result in higher tax liabilities for individuals and businesses.
President Biden has proposed allowing many of the 2017 tax law known as the Tax Cuts and Jobs Act (TCJA) to expire, and former President Trump has yet to lay out his plan but has said he would extend parts of the bill in the past.
This act substantially changed the tax code, including expanding tax brackets and lowering the top tax rate, increasing the standard deduction, capping the mortgage interest and state and local tax (SALT) deductions, and increasing the federal gift and estate tax exemption.
But much of this will also depend on the makeup of Congress.
So, it is crucial to stay informed about these potential changes and plan accordingly to mitigate their impact on your financial situation.
Strategies to Minimize Tax Impact
One key strategy to minimize the impact of potential tax hikes in 2024 is to engage in tax planning. This includes reviewing your current financial situation, assessing potential tax liabilities, and identifying opportunities for tax savings.
You may also consider maximizing contributions to retirement accounts, utilizing tax-efficient investment strategies, converting to a Roth, and taking advantage of tax credits and deductions.
With a Roth conversion, you can transfer money from a traditional 401(k) or IRA to a Roth 401(k) or Roth IRA and pay taxes on the converted amount. Still, the money has growth potential, and you can take qualified withdrawals tax-free, but they are not subject to required minimum distributions for the owner’s life.
You can also consider realizing gains this year if capital gains taxes rise next year. If you have significant gains in your portfolio, it is also known as tax-loss harvesting. Tax-loss harvesting allows you to sell down investments, replace them with reasonably similar investments, and offset realized investment gains with those losses, potentially reducing your tax bill.
You might also consider some new strategies for taking RMDs, which are taxed at ordinary income rates. If you believe you might be in the new higher bracket, consider qualified longevity annuity contracts (QLACs), re-taxed at ordinary income rates. If you think you might be in the new higher bracket, consider a QLAC, a deferred income annuity purchased with retirement funds typically held in a traditional IRA or 401(k). A QLAC allows you to defer taking income until the maximum age of 85. The maximum lifetime funding amount for a QLAC is $200,000.
Consider speaking and working with a tax professional who can help you develop a customized tax plan that aligns with your financial goals and minimizes your tax burden.
Importance of Long-Term Financial Planning
With potential tax hikes in 2024, long-term financial planning becomes even more critical. By establishing clear financial goals, creating a budget, and setting aside savings, you can build a solid foundation for your future financial success. Long-term planning also involves considering factors such as retirement planning, estate planning, and risk management to ensure that you are prepared for any tax changes that may arise in the future.
Expert Advice for Navigating Tax Changes
Navigating tax changes can be complex and overwhelming, so seeking expert advice is essential. Tax professionals, financial advisors, and accountants can provide valuable insights and guidance to help you navigate potential tax hikes in 2024. These experts can help you understand the implications of tax changes, identify opportunities for tax savings, and develop a comprehensive tax strategy that aligns with your financial goals.
Uncertainty can be challenging, so remember that long-term financial planning is key to building a secure financial future, regardless of potential tax changes. Start preparing to navigate potential tax hikes in 2024 and beyond.
