Financial Advisors: 7 Tax-Friendly Expenses To Plan Before the End of the Year
Written by
Jordan Rosenfeld
Edited by
Amber Barkley
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Tax time might seem a long way off, but realistically, most of the money moves you need to make to file them need to be wrapped up by the end of the year in order to apply.
While most of the time, we think about ways to conserve money, there are some important expenses that you should consider making before the end of 2024; they’ll not only be worth the expense in general, but can benefit you at tax time.
Financial experts explain which expenses are worth paying before the new year rolls in.
Charitable Contributions
If you’re in the position to itemize deductions on your tax return, you may have an opportunity to write off some or all of the value of qualifying charitable donations you make from your taxable income, according to Christopher Stroup, CFP, founder and president of Silicon Beach Financial.
“These charitable expenses could come in the form of cash or property, such as clothing or appreciated stocks from your portfolio. Given existing IRS guidelines, you can typically deduct upwards of 60% of your adjusted gross income,” he said.
However, be careful that the charity you pick is an eligible non-profit organization, said Brian Long, senior tax advisor at Wealth Enhancement Group. “I have a lot of clients that will donate to things like a GoFundMe, which is not a charitable contribution. So that’s a big thing to make sure that you are aware of.”
Purchase Solar for Your Property
If you’ve been thinking about putting solar panels on your roof or getting a solar battery, now is a good time to do it, Stroup said, because the residential clean energy credit, more commonly referred to as the solar tax credit, can help you save up to 30% on the installation cost of solar energy systems on your home. Qualifying expenses include things like solar panels and solar water heaters.
However, Long warned that you make sure that you not only pay for the expense before end of year, but also have the work completed by end of year, or the IRS might not count your deduction this year.
Upgrade the Energy Efficiency of your Home
Another federal credit that can benefit your home and your taxes comes from the Inflation Reduction Act, which revised the energy efficient home improvement tax credit, Stroup said.
“This credit allows homeowners who purchase qualifying home upgrades to recover up to $3,200 on those expenses when they file their taxes. Qualifying home upgrades include improvements like energy-efficient heat pumps, doors and windows,” he said.
Purchase an Electric Vehicle
Additionally, if you’ve been thinking about purchasing an electric vehicle (EV), jump while the credits are hot. Stroup explained that the EV tax credit could save you anywhere between $3,750 to $7,500 on the purchase of a new electric vehicle.
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“If going used is more preferable for your purchase, the credit can help you recoup up to $4,000,” Stroup said. “It’s important to understand that eligibility depends on a number of factors, including your income, the price of the car and whether your car meets guidelines outlined by the IRS for qualified EVs.”
Save to Your 401(k), IRA or HSA Account
Additionally, though not technically an expense, every dollar you allocate toward these investments accounts can help lower your taxable income today, Stroup said. “Given the tax-deferred nature of these accounts, the funds can compound and grow tax-free until you begin withdrawing the funds in retirement.”
Long added that you must have a high deductible health insurance plan in order for you to be able to make those HSA contributions. Typically, HSA accounts are good for things like necessary medical expenses, non-elective surgery and so on, he explained. It also needs to clear more than 7.5% of your adjusted gross income to be an itemized deduction.
Invest In a 529 Educational Plan
Another contribution that isn’t necessarily an expense, but will come out of your income, is paying into a child’s 529 educational plan, Long said. While you won’t get a tax credit, it can reduce your taxable income and compounds in interest over time.
Moreover, if your child doesn’t use these funds for educational purposes, they can be rolled over into Roth IRAs later on, with some stipulations.
Take Business Expenses
If you run your own business, you are likely writing off as many business expenses as you can find. However, Long said the IRS only allows expenses that are “ordinary and necessary” to the running of your business. These will vary from business to business, but the IRS is wise to tricks to game the system, he said, so be realistic.
“There is a lot of gray area, and that’s where a tax professional can really come in handy. Not only because they know the rules, but they also have the prior experience … They just know how other clients have operated,” he explained.
The gist of most of these expenses is that they will benefit your taxes in one way or another. However, there’s no need to take on an expense that you can’t afford — no matter the time of year.
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