%20(2).png)
DATE: 12/06/2024
Jonathan G. Browning
Chief Strategy Officer | Hornet Corporation, Tennessee
Year-End Tax Planning for High-Income Earners: Smart Moves for Q4 2024
As the year winds down, high-income earners have an excellent opportunity to take proactive steps toward minimizing their 2024 tax liability while setting a strong foundation for the next tax season. While every financial situation is unique, general practices and strategies can help streamline the year-end tax planning process. Here are some ideas that many individuals consider during the fourth quarter to prepare for filing taxes in 2025.
1. Maximize Retirement Contributions
For high-income earners, contributing to retirement accounts such as 401(k)s, traditional IRAs, or SEP IRAs is a popular way to reduce taxable income. Here’s what many people do:
401(k) Contributions: Ensure you’ve contributed the maximum allowable amount for 2024, which is $22,500 (or $30,000 if you’re 50 or older).
Catch-Up Contributions: If eligible, use catch-up contributions to boost your retirement savings while enjoying additional tax-deferred benefits.
Roth Conversions: Some individuals explore converting traditional IRAs to Roth IRAs to benefit from tax-free withdrawals in the future potentially.
Tip: Check your payroll to confirm you’re on track to hit your contribution limits by year-end.
2. Harvest Investment Gains and Losses
The fourth quarter is a good time to review your investment portfolio to assess capital gains and losses. Many people use the strategy of tax-loss harvesting to offset gains by selling underperforming assets, which can help reduce their taxable income.
Short-Term vs. Long-Term Gains: Long-term gains are typically taxed at lower rates than short-term gains, so consider the holding period before making decisions.
Portfolio Rebalancing: While selling assets, some investors also rebalance their portfolio to align with long-term financial goals.
Note: Always consider how this aligns with your overall investment strategy.
3. Consider Charitable Contributions
Charitable giving is a popular year-end strategy for high-income earners who want to support causes they care about while potentially reducing taxable income.
Donor-Advised Funds (DAFs): Many individuals set up a donor-advised fund to make a charitable contribution this year and decide later how the funds are distributed.
Qualified Charitable Distributions (QCDs): If you’re 70½ or older, QCDs allow you to donate directly from your IRA, satisfying Required Minimum Distributions (RMDs) and avoiding additional taxable income.
Tip: Keep detailed receipts and ensure donations go to qualified charitable organizations.
4. Use Health Savings Accounts (HSAs)
If you’re enrolled in a high-deductible health plan (HDHP), contributing to a Health Savings Account (HSA) is a widely used strategy for reducing taxable income while saving for future medical expenses.
Contribution Limits: For 2024, the maximum HSA contribution is $3,850 for individuals or $7,750 for families, with an additional $1,000 catch-up contribution for those 55 or older.
Triple Tax Advantage: HSAs offer tax-free contributions, growth, and withdrawals for qualified medical expenses.
Note: Contributions must be made by April 15, 2025, but many individuals maximize their contributions by year-end.
5. Review Deductions and Credits
High-income earners often explore opportunities to maximize deductions and credits, particularly if their income level phases them out of certain benefits.
Itemized Deductions: Compare the benefits of itemizing deductions (e.g., mortgage interest, state and local taxes, medical expenses) versus taking the standard deduction.
Energy-Efficient Home Improvements: The Inflation Reduction Act offers credits for installing energy-efficient systems like solar panels or heat pumps. Many people consider completing these projects before year-end to claim the credit.
6. Prepay Certain Expenses
Some high-income earners prepay deductible expenses, such as property taxes or mortgage interest, to increase deductions for the current year. While this is a common strategy, it’s essential to be mindful of limits like the $10,000 cap on state and local tax (SALT) deductions.
7. Review Business Income and Expenses
If you own a business, year-end planning often includes reviewing income and expenses:
Accelerating Expenses: Purchasing equipment or prepaying for services before December 31 can help reduce taxable business income.
Deferring Income: In certain cases, business owners defer income until the next tax year to avoid pushing themselves into a higher tax bracket.
8. Plan for Required Minimum Distributions (RMDs)
If you’re 73 or older, Required Minimum Distributions (RMDs) must be taken from certain retirement accounts by December 31 to avoid penalties. Many retirees ensure they’ve met these requirements by Q4 to avoid costly mistakes.
9. Work with Professionals
Many high-income earners rely on tax advisors and financial planners to create a customized plan that aligns with their goals. Working with professionals can provide clarity, especially for those with complex financial situations.
10. Stay Organized
Gathering documentation for tax season early can save time and stress. Many individuals prepare by:
Collecting receipts for deductible expenses.
Reviewing W-2s, 1099s, and other income statements.
Organizing records for charitable contributions, investment transactions, and business expenses.
Final Thoughts
Year-end tax planning is a valuable exercise for high-income earners looking to optimize their financial position and prepare for a smooth tax season. While these strategies are commonly used, every individual’s situation is unique. It’s always a good idea to consult with tax professionals to ensure compliance with current laws and regulations.
About The Author:
Jonathan G. Browning
As the Chief Strategy Officer at Hornet Corporation, Jonathan leads strategic initiatives to drive growth and expansion. With over 15 years of experience in strategy, operations, and consulting, he has a proven track record of increasing revenues and leading large teams. Before joining Hornet Corp, Jonathan held executive roles, driving revenue growth and operational efficiency across the oil, gas, finance, and mining industries.
For a quarter of a century in the oil industry, our team at Hornet Corp has navigated the inherent fluctuations of a commodity-based market with unwavering stability. Our operational approach and robust structure have fortified our resilience, allowing us to withstand significant downturns such as the COVID-19 pandemic and the 2008-2009 financial crisis. While many companies retracted or shuttered during these challenging times, we, alongside our partners, remained steadfast, continuously investing in our shared objectives.
Our partners deeply value our commitment and trust in our dedication to every aspect of our business—from effectively producing wells and ensuring the prompt delivery of tax documents to the timely distribution of revenue checks and maintaining seamless communication throughout the entire process.
Our Executives Have Mud on Their Boots: Vertically Integrated
Beyond our comprehensive involvement in each phase of oil well development, we've strategically invested to adeptly navigate the complexities of a commodity-based business. Hornet Corp owns both leasing and operating companies, demonstrating our commitment to integrated asset management. By owning our headquarters, field office, research and development office, and supply yard, we've established a robust infrastructure that supports our operations. These strategic assets, combined with our unique business model, empower us to efficiently raise capital, drill, and complete wells swiftly and cost-effectively, setting us apart in the industry.
No Middlemen! Hornet Corp & You: Owner Operator
Our involvement spans the entire spectrum of oil well development, offering a seamless experience for our partners. This comprehensive approach eliminates the need for middlemen and reliance on multiple companies. We oversee everything from leasing, investment, drilling, completion, to the operation of the wells, ensuring efficiency and cohesion at every step. By centralizing these phases under one roof, we streamline the process, making it more accessible and effective for our partners and enhancing the overall potential success of each project.
Strategically Designed, Optimized Structure
We design our programs to offer accredited partners significant ownership across multiple wells without requiring a hefty investment. By advocating for diversifying investments across several wells, we maximize potential returns for our partners. Additionally, our strategically chosen locations provide the unique opportunity to drill wells that can tap into multiple pay zones within various formations, significantly enhancing the chances of success. Our approach goes beyond targeting a single pay zone, aiming for multiple layers of potential within each well to ensure sustained profitability.
Building Relationships: Seamless Partnership
By blending today’s cutting-edge technology with traditional old-school, open-door communication, we manage and nurture our partnerships securely and effectively. This balance ensures that our partners enjoy a high level of trust in a stable and transparent environment, fostering long-term relationships. As a result, our partners often engage in multiple projects and ventures with us rather than just a single investment, solidifying sustainable and enduring partnerships.
Are You Ready to Put Your Tax Dollars to Work? You can diversify with an opportunity that carries up to a 100% tax write-off. Join Hornet Corp in leveraging your tax dollars to invest in a stable and profitable oil industry venture.
(888) 783-3099
Comments