8 tax-reducing steps to take before 2024 ends, according to $2 trillion wealth manager BNY Mellon

Investors can modify the timing of their income or deductions to reduce their tax bills.

With October coming into view, it’s a good time to sit down and review your tax strategy for 2024.

And with the impacts on tax legislation that the presidential election could have, this is an especially important year to pay close attention to your approach to minimize your tax burden, according to BNY Mellon Wealth Management.

In a recent note, the bank shared eight tax-reducing actions for investors to consider before the tax year ends on December 31st.

Minimize income tax

Investors can modify the timing of their income or deductions to reduce their tax bills.

For example, BNY Mellon says to consider accelerating income into 2024 to take advantage of current tax rates in the event of an increase in 2025. Investors can accelerate income by exercising stock options and realizing deferred compensation.

On the other hand, high earners may want to defer investment income to minimize their net investment income tax (NIIT). The NIIT is a 3.8% tax on net investment income for individuals whose income (MAGI) crosses $200,000 for single filers, so deferring income can help investors avoid triggering the threshold.

For those expecting income from the sale of an asset like real estate, BNY Mellon suggests electing out of collecting that income on an installment basis. By selling on an installment basis, the seller collects payment on a staggered timeline instead of all at once, resulting in at least one payment after the tax year in which the sale happens. If taxes increase in the coming years, investors who use the installment method could find themselves on the hook for higher taxes.

Rebalance your portfolio

It’s also important to consider future taxes on your investment portfolio, the bank said. Tax-loss harvesting is one strategy to minimize capital gains taxes on tradable securities such as stocks, bonds, and ETFs. Investors who sell an asset at a loss can use the loss to offset capital gains on another investment. You can also offset personal income using this method — if your losses exceed gains this year, you can use the difference to discount up to $3,000 of personal income. Investors utilizing this strategy should liquidate their losses before the December 31 deadline.

But if you’re using the tax-loss harvesting strategy, make sure to avoid the wash-sale rule. This rule prohibits investors from selling a security at a loss and buying back the same investment within 30 days of the sale. If you want to recognize a capital loss but stay invested in the security, consider making an additional purchase of the security more than 30 days before selling at a loss, the note said. With 2024 coming to an end, investors should keep in mind this 30-day timeframe.

Retirement considerations

BNY Mellon also said to consider maxing out your retirement accounts, such as a 401(k), traditional IRA, Roth IRA, and other plans. Maxing out your contributions could be especially pertinent this year, as BNY Mellon sees potential for new legislation to limit retirement account contributions in the future.

Those over 50 years of age making “catch-up” contributions can add an additional $1,000 to a Roth IRA on top of the $7,000 limit, for a total of $8,000 this year, the bank pointed out.

Also, consider switching from a traditional IRA to a Roth IRA. While this means you’ll owe income tax on the money you convert, your assets will accumulate tax-free in the Roth IRA going forward, according to the note. This is especially advantageous if you anticipate your future tax rate to be higher than what it is currently, as eligible Roth IRA withdrawals are tax-free.

Lastly, if eligible, investors should ensure they take the required minimum distributions from their retirement plans. After a certain age, you must withdraw a minimum amount from your retirement account to avoid a tax penalty, the bank said. Those over the age of 73 who don’t take the required minimum distribution are subject to a 25% tax on the undrawn amount. Avoid this penalty by double-checking your required minimum distribution prior to year-end.