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Tax Strategies That May Save You Money in 2024

Tax Strategies That May Save You Money in 2024

February 20, 2024

One of the largest expenses we all incur, especially in retirement, is taxes. Taxes can significantly reduce the after-tax returns from our investments and reduce our disposable income. So, as we approach the 2023 tax filing deadline of April 15, 2024, we’d like to offer up some tax planning ideas for 2024 that may help you keep more of your hard-earned money. We’ll begin with a discussion of whether itemizing deductions still makes sense and move on to other strategies in the weeks ahead.

The Standard Deduction Versus Itemized Deductions

 The standard deduction for 2023 is $27,700 (Married Filing Jointly- MFJ). In 2024 this goes up $1500 to $29,200. If you or your spouse are 65 or over, you can claim another $1550 each. The Standard Deduction has increased dramatically in recent years so that many tax-payers no longer find they benefit from Itemizing Deductions since the Standard Deduction works out to be higher. This is especially true ever since the State and Local Tax Deduction has been limited to $10,000 and the mortgage interest deduction is limited to $750,000 of debt (from $1 million previously).

However, savvy taxpayers may still be able to benefit from Itemized Deductions by strategically planning such things as:

  • Bunching several years of charitable donations into a single year.
  • Planning deductible medical expenses to occur within the same calendar year. Deductible medical expenses are unreimbursed expenditures for medical and dental procedures for you, your spouse and your dependents that exceed 7.5% of your AGI. These expenses can also include health and long-term care insurance premiums, long term care expenses, eyeglasses and contact lenses, laser eye surgery and many other health related expenses.
  • Strategically managing the mortgage interest deduction: The mortgage interest deduction is limited to $750,000 of debt but people who had $1,000,000 of home mortgage debt before December 16, 2017, can still deduct the interest on that loan. The $750,000 debt limit applies to the combined debt on a primary residence and one secondary residence, as well as any other second mortgages such as home equity loans and home equity lines of credit (HELOCs). The IRS states that if you used Home Equity money to "buy, build, or substantially improve" your home, you can deduct the interest you paid on these loans. Otherwise, this interest isn't deductible. (IRS Pub. 936)

 Let’s look at an example of how this might work in practice:

 Let’s say you make charitable donations of $25,000 annually and max out the State and Local Tax deduction at $10,000. Here’s what your deduction might look like over the next 4 years:

 

 In this example, you would itemize each year since your deduction from doing so exceeds the Standard Deduction every year.

 Now, let’s consider bunching all your charitable deductions you were planning to give over the next 4 years into a single year:

 

By doing so you would get a much larger deduction in 2024 from itemizing and then taking the Standard Deduction for the remaining 3 years. Overall, you would have $57,600 of greater deductions through this strategy- all the while giving the same amount to charity.

This information is designed to provide a high-level overview, and taxpayers should, of course, consult with their tax professional to assess their specific situation. We work with our clients in partnership with their tax professionals to help them navigate the tax laws and put in place strategies that may reduce tax liability. Our goal is to make clients aware of all the applicable tax opportunities. Please don't hesitate to reach out to us if you would like to learn more about our services and how we can specifically help you.

Source: PIMCO, “2024 Tax Planning Strategies”