As the calendar year draws to a close, the window for tax-saving opportunities narrows. However, it’s not too late to implement strategies that could lower your tax bill. By focusing on charitable contributions, Health Savings Accounts (HSAs), and 529 plans, you can make a significant impact on your finances before December 31. For those living in Indiana and some other states, a unique 529 plan tax credit further enhances the benefits.
Charitable contributions are a valuable tool for reducing your tax liability while supporting causes you care about. If you itemize deductions, donations to qualified charitable organizations are tax-deductible. You can contribute cash, appreciated securities, or other assets, and each type of donation offers distinct benefits. Cash donations are deductible up to 60% of your adjusted gross income (AGI), while donating appreciated stock allows you to avoid capital gains taxes on the asset’s growth and get up to a 30% deduction on taxes. Additionally, if you are 70½ or older, consider making a Qualified Charitable Distribution (QCD) directly from your IRA. QCDs allow you to donate up to $100,000 annually without including the amount in your taxable income, which can also satisfy your required minimum distribution (RMD).
Another essential tax-advantaged account to consider is a Health Savings Account (HSA). HSAs provide a triple tax advantage: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. For 2024, individuals can contribute up to $4,150, while families can contribute up to $8,300. Those aged 55 and older can add an additional $1,000 as a catch-up contribution. If you’re covered by a high-deductible health plan (HDHP) but haven’t yet maxed out your HSA contributions, doing so before year-end can lower your taxable income while building a reserve for future healthcare costs. Additionally, HSAs are unique in that the funds roll over year after year, unlike Flexible Spending Accounts (FSAs), making them an excellent tool for long-term financial planning.
For Indiana residents, contributing to a 529 College Savings Plan before year-end can yield substantial state tax benefits. Indiana offers a 20% tax credit on contributions up to $7,500 per year, providing a maximum credit of $1,500. This means that every dollar you contribute up to the limit not only grows tax-free for educational expenses but also directly reduces your state tax liability. These plans can be used for a wide range of education-related costs, including tuition, fees, books, and even K-12 expenses in some cases. Parents, grandparents, and others who wish to support a child’s education should consider taking advantage of this incentive. To maximize this benefit, make your contributions before December 31st.
Acting on these strategies now can yield meaningful tax savings while setting the stage for long-term financial success. Consider making charitable contributions, maximizing your HSA contributions, and taking full advantage of Indiana’s generous 529 plan tax credit if you’re eligible. These proactive steps not only reduce your immediate tax burden but also help secure your financial future. As always, consult with a tax advisor or financial planner to ensure these moves align with your specific goals and circumstances. Taking action today can pave the way for smoother tax filing and greater peace of mind tomorrow.
Financial Enhancement Group is an SEC Registered Investment Advisor.
