2024 Year-end planning strategies

As you prepare for year end, consider the following:

• Review your projected income (including gains), deductions and credits for this year and next year. See whether any of these can be timed to minimize your income tax liability.
• Determine how your projected income tax liability may be affected if income tax brackets revert to pre-2018 rates, as they are set to do at the end of 2025.
• Harvest capital losses to offset any capital gains that will count for this year.
• Explore whether it makes sense to exercise stock options you own. Keep in mind that exercising incentive stock options (ISOs) is not a taxable event for regular income tax purposes, but is for alternative minimum tax (AMT) purposes.¹ With the potential reversion of income tax brackets to pre-2018 rates in 2025, exercising non-qualified stock options (NSOs) this year and next may have some benefits.

Review the following ideas to help minimize or avoid gift, estate and generation-skipping transfer (GST) taxes.

• Make a gift using the annual exclusion. In 2024, you can give up to USD 18,000 to any number of individuals (USD 36,000 per married couple). Any gifts that exceed the allowed amounts count against your lifetime exemption.
• Make gifts using the lifetime exemption (for gift and estate taxes). In 2024, an individual’s lifetime exemption is USD 13.61 million.² The lifetime exemption indexes annually for inflation, but a temporary doubling of the lifetime exemption is set to expire after 2025. By making gifts before 2025, you potentially can take advantage of the higher exemption.^{2, 3}
• Determine whether your family business or other entity needs to comply with the Corporate Transparency Act’s new reporting requirements.⁴

• Sending Crummey notices. When an individual makes a contribution to a trust, the trust agreement may require the trustee to provide notices to the beneficiaries who can withdraw some or all of the contribution. Even if the trust agreement doesn’t require these notices, it may be advantageous to do so to ensure a contribution qualifies for the gift tax annual exclusion (to the extent of the withdrawal powers).
• Making year-end distributions from nongrantor trusts. A grantor or beneficiary of a nongrantor trust might ask the trustee to consider distributing the trust’s income (and, depending on the trust’s terms, the trust’s capital gains) to the beneficiaries, who are taxed at lower rates than the trust. This may be more tax-efficient, because trusts are subject to compressed income tax brackets and a lower threshold for the 3.8% net investment income tax.
  

Review your charitable gifts made so far this year and consider making additional gifts. This can reduce your regular income taxes. In addition, consider the following:

• Make a charitable contribution to a donor-advised fund (DAF). You can receive an immediate income tax deduction and retain the ability to advise on making grants or on how assets are invested in the fund.
• Review investments and operations for a private foundation where you serve as a director or trustee to ensure the foundation is meeting distribution requirements. Foundations generally must make qualifying distributions of at least five percent of its assets each year.
• Make qualified charitable distributions (QCD) if you are 70½ from an IRA to a public charity (other than a DAF or supporting organization).⁵ In 2024, an individual generally can make up to USD 105,000 of QCDs.⁶