5 tax planning actions to take before year-end

Markets usually exhibit heightened volatility during an election year as investors focus on candidates’ divergent views on taxes, regulations and other critical policies, as well as the potential impact of any potential changes. In 2024, this uncertainty is being compounded by the real possibility of future tax rate increases, given that key provisions of the 2017 Tax Cuts & Jobs Act (TCJA) are scheduled to expire at the end of 2025.

Right now, we do not anticipate that any major tax legislation will be enacted that might affect individual taxpayers before the end of 2024. Next year, however, Congress is likely to be intensely focused on tax legislation, but the prospects for any such legislation will be based on the results of the U.S. election in November. Regardless of who becomes president, tax legislation originates in Congress, not the White House, so any changes to tax laws must first pass the House of Representatives and then the Senate. Each chamber, and its respective members, will have to consider competing interests and priorities.

With that outlook in mind, now is the time—as the end of the year approaches—to reduce uncertainty by planning ahead and assessing what, if anything, you can do to reduce your 2024 tax bill. As a first step, ask your professional advisors for help estimating what you might owe. Then identify the tax planning strategies that best fit your personal circumstances.

The sooner you begin to take stock, the more time you will have to ensure your plans are in place by December 31.

Here are five planning ideas to help you get started.¹

1. Develop a base case

As a first step, ask your tax advisor to prepare a pro forma 2024 tax return. This information will help you understand your current tax situation—and how that might change if you were to realize more income or incur additional deductions this year. 

Similarly, ask your J.P. Morgan team for a “tax summary” of year-to-date activity in your J.P. Morgan accounts to clarify your tax estimates.²

With this snapshot in hand, you can better assess whether or not it makes sense to implement tax planning strategies before year-end.

2. Consider these tax-smart strategies

Harvest tax losses

Financial markets have performed well this year, so you could potentially owe a steep tax bill if you realized gains. However, you may be able to reduce the bill by harvesting losses before year-end. Tax-loss harvesting is a classic strategy that may be used to reduce your tax liability.³

Harvesting losses requires you to sell an investment at a loss. You then can use this loss to offset either already-realized gains, or embedded gains that you can realize now or in the future.

If you still like the asset, you can buy it back—so long as you are careful not to violate the “wash sale rule.” This rule prevents you from taking a loss if you buy a security considered “substantially identical” within 30 days before or after the loss trade date.⁴

If you do not want to be out of the position for an entire month, you might consider “doubling up” on your position (i.e., buying the identical position at the current price, then waiting more than 30 days before selling the original loss position). November 29—the day after Thanksgiving this year—is the last day to do so and still be able to recognize the loss for 2024. 

Of course, tax-loss harvesting isn’t limited to year-end planning. Ideally, you would regularly review your portfolio for harvesting opportunities. Even when markets are up, dispersion creates an opportunity for tax-loss harvesting. Year-to-date through September 2024, for example, more than 300 stocks in the S&P 500 have experienced a drawdown of at least 5%.⁵ Indeed, you might benefit from having an account that is specifically designed to consistently look for losses, and realize them when appropriate. For more information, see How to help make sure you keep more of what you earn.

Deduct charitable contributions

It is always advisable to try to time your charitable donations to ensure the associated deductions are effective in the intended tax year. Depending on what you plan to donate, it could take time to complete the transfer. Consult your financial institutions about their estimated timelines to ensure your donations will be considered to have been made by the end of this year.

If you’re unsure which charity you want to support, but would like to use the deduction this year, consider donating to a donor-advised fund (DAF). Tax deductions for donations to DAFs are immediate, but the payout from the DAF to another charity does not have to be.

Minimize estimated payments

The U.S. tax system is a pay-as-you-go structure, with most taxpayers paying taxes through regular withholding from their compensation. However, many high-income earners must pay quarterly estimated taxes (generally by or around April 15, June 15, September 15, January 15) to avoid interest charges on the amount that is ultimately due April 15 the following year.

The law allows estimated payments to be made on the basis of a “lesser of” calculation, so you can choose to pay either:

• 110% of the actual tax liability for the preceding year, or
• 90% of the estimated tax liability for the current year⁶

In a higher interest rate environment, taxpayers expecting to owe much more in taxes in the current year than in a prior year may want to pay estimated taxes based on their tax liability for the preceding year, and consider investing the difference in 100% principal-protected, short-term fixed income to take advantage of higher rates. 

3. Optimize compensation and benefits

Fund retirement

If you can contribute to a retirement account, we recommend doing so—up to the full dollar amount permissible. In 2024, the maximum annual amounts you can contribute to retirement accounts before year-end are:

• IRAs—$7,000. If you are 50 or older, it’s $8,000
• 401(k)s/403(b)s—$23,000. If you are 50 or older, it’s $30,500⁷

Converting assets from a traditional IRA to a Roth IRA may be a smart move if you:

• Think your future income tax rates may be higher
• Can afford to pay the taxes with cash from other sources
• Do not plan to leave IRA assets to charity
• Expect the IRA to last for a while

Take required minimum distributions

Be sure to take your required minimum distributions (RMDs) by year-end to avoid steep penalties. If you own a retirement account and have reached age 73, generally you will need to take an annual RMD each year before December 31.⁸ Prior to the passage of the SECURE 2.0 Act in 2022, RMDs began at age 72 or 70½.

If you have significant philanthropic objectives, remember that you can make a qualified charitable distribution (QCD) from your IRA directly to a public charity (not a DAF). The amount given will go toward satisfying your RMD.⁹ However, depending on your circumstances, it might be more tax efficient to gift appreciated securities held for more than one year. For more information, see Are qualified charitable distributions always the best tax-saving move?

If you inherited an IRA after 2019, final regulations issued in July 2024 require that—beginning in 2025—certain beneficiaries take annual distributions over the 10-year period following inheritance, instead of waiting to distribute the full account until the 10th year. Depending on the age of the original owner and the beneficiary, among other factors, in many cases the RMD in the first nine years would be relatively modest, with a large terminating distribution to be made at the end of the 10th year. 

The rules are highly nuanced, so it’s critical to consult your tax advisor to confirm your RMD requirements if you are the beneficiary of an inherited IRA. Your advisor can help you settle on a long-range plan to minimize taxes to an extent consistent with your overall financial goals.¹⁰

Defer compensation

If your employer allows you to defer your compensation, you must elect to defer your 2025 fixed salary and other non-performance-based compensation by December 31, 2024, if not earlier, as specified by your employer.

With a deferral, there is no income tax liability on either the compensation or its growth until you receive it, at which time, the payment will be taxed at the ordinary rates in effect. The tradeoff for electing this deferral is that you assume risk as a general creditor of the employer.

This decision, too, requires careful consideration of your expected current and future income tax rates.

Exercise stock options

If you are an executive, you may want to exercise some of your stock options in 2024. The important question is: Which to choose? Good candidates generally include:

• Options that are deep “in the money”¹¹
• Options on high-dividend-paying stocks
• Options near their expiry

This year’s market volatility can make this decision more complicated, so ask your J.P. Morgan team for an “options breakeven” analysis.

4. Make tax-wise gifts to your children

Use your lifetime exclusion amount now

Currently, an individual can transfer up to $13.61 million free of estate and gift taxes; for married couples, the tax-free transfer amount is $27.22 million. 

These amounts—currently at an all-time high—are set to decrease after 2025. If the new caps remain in effect after the U.S. election, they would reduce tax-free transfers to $5 million (inflation adjusted) for individuals and to $10 million for married couples.

If you have a taxable estate, the capacity and desire to gift, and all or part of your current lifetime gift and estate tax exclusion remains unused, think about acting soon to lock in the extra gifting potential.

Using our proprietary technology, Wealth Plan Plus, your J.P. Morgan team can help quantify your gifting capacity so you can transfer assets without jeopardizing your own future financial security. 

Put annual tax-free gifts to good use 

Every year, U.S. taxpayers can take advantage of an “annual gift tax exclusion,” and give to as many individuals as they choose for any present use. In 2024, individual taxpayers can give up to $18,000 free of gift taxes. Married couples can give up to $36,000 tax-free.

The annual gift tax exclusion is a use-it-or-lose-it opportunity. If you do not make a gift this year, you cannot double up next year and treat half the gift as having been made in 2024.

Parents and grandparents often use their annual gift tax exclusions to fund 529 educational savings accounts, where the funds grow free of U.S. income and capital gains taxes. As long as the money is used for the account beneficiary’s qualified education expenses, no U.S. income or gift tax will be due upon distribution. 

5. Get professional advice

There are many ways to strengthen your financial health before year-end, especially if you get started now.

Speak with your tax advisor about which actions may be right for you. Your J.P. Morgan team can work with you and your tax advisor to help identify tax planning actions that are best suited to your personal circumstances and long-term financial goals.

For more on year-end tax planning, see our comprehensive checklist, “Your 2024 Tax Guide.”

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.​