The year is quickly drawing to a close, so it’s important to take a moment and review your tax strategy. Though it might seem daunting during the busy holiday season, a few minutes could help you minimize your tax bill and keep more money in your pocket.
Reduce Your Taxable Income
Your traditional TSP is funded with pre-tax dollars which results in a reduction of your taxable income. If you’re worried about being in a higher tax bracket, max out your contributions to your TSP. For 2024 the most you can contribute is $23,000. If you’re turning 50 or older this year, you can make an additional $7,500 in catch-up contributions.
Identify Gains and Losses
If you have investment holdings that result in a taxable capital gains distribution, you need to be prepared for the tax liability. When you take a minute to identify the amount of taxable gains, you’ll be able to estimate the taxes due. You might also consider selling an asset that has lost value so that you can use the tax break on the loss to offset the taxes on gains.
Required Minimum Distributions
Once you reach a certain age, you are required to take distributions from some retirement savings accounts. Fortunately, your TSP handles these distributions for you, but if you have other retirement accounts or an inherited Roth IRA, you’ll want to be certain you’ve met your RMD threshold or you could face a large penalty from the IRS. Since RMDs will raise your taxable income, you might consider a Qualified Charitable Donation. Not only does it fulfill your RMD requirement, but it avoids income tax while helping others.
Charitable Giving
Everyone enjoys donating to a good cause, and If you’re planning to donate regularly to charity over the next several years, you may benefit from “bunching”. This process involves combining several years of donations into one tax year, which could push you past the increased standard deduction threshold and allow you to itemize your taxes to reap the full benefits.
Another option is establishing a donor-advised fund (DAF) which gives you immediate tax credit for money or assets placed in an an account held in charity. In some cases, these accounts can be invested to grow your initial donation and increase the amount you donate.
For more information on creating a tax strategy that will help you keep more money in your pocket, speak with a tax professional or reach out to an FRC® trained advisor who can offer unique insight for federal employees.
