Income in 2024 Higher Than Usual? Consider These Year-End Tax Moves

Take Control of Your Taxes After an Unexpectedly High-Income Year

Photo by Carles Iturbe Ferre

The end of the year is a great time to review your financial situation, especially if 2024 turned out to be an unusually high-income year for you. Perhaps you landed a big bonus, took on a lucrative project, or changed roles to one with a higher salary. While a jump in income can be exciting, it also means a potentially larger tax bill.

The good news? With thoughtful planning, there are steps you can take to manage your tax liability and make the most of this year’s financial success. Explore these approaches: 

1. Max Out 401(k) Contributions

One simple way to reduce your taxable income is to save as much as you can into an employer-sponsored retirement plan like a 401(k), 403(b), or 457(b) plan. Contributions to these accounts can be made on a pre-tax basis, which lowers your taxable income for the year. The 2024 contribution limit is $22,500, or $30,000 if you’re 50 or older.

Why this matters: By increasing your contributions for the final pay periods of the year, you can reduce your taxable income while bolstering your retirement savings. Check with your plan provider to confirm that you can adjust your contributions outside of open enrollment (most plans allow this). You can always scale your contributions back down in the new year.

2. Charitable Giving

Higher income often means higher taxes, but charitable giving can help offset some of that burden. If you’ve been planning to donate to charity in the coming years, consider accelerating those contributions into 2024 to take advantage of the tax deduction.

Another option is to open a Donor-Advised Fund (DAF). With a DAF, you can contribute to the fund now and take the tax deduction this year, but distribute the funds to specific charities over time.

Why this matters: If your itemized deductions exceed the standard deduction ($13,850 for single filers or $27,700 for joint filers in 2024), charitable donations can reduce your taxable income. A DAF allows you to secure the tax benefit now without having to decide immediately where to direct your contributions.

3. Tax-Loss Harvesting

If you manage your own investments or have someone who can help you buy and sell examine your portfolio and see if you can find investments whose value have dropped below the level at which they stood when you purchased them. Selling securities at a loss (which counts against taxable gains and, in some cases, ordinary income) is called tax-loss harvesting.  

But take note: if you purchase the same security—or a substantially similar security—in the 30 days before or after selling at a loss, you forfeit your right to claim that loss on your taxes. Selling and buying in such quick succession amounts to what’s called a wash sale. 

Why this matters: Tax-loss harvesting can reduce your taxable income while keeping your portfolio aligned with your goals. It’s particularly effective in a high-income year, as it offsets gains that might otherwise be taxed at higher rates.

Final Thoughts

A high-income year is a wonderful opportunity to strengthen your financial foundation, but it’s important to approach it thoughtfully. These strategies—maximizing 401(k) contributions, leveraging charitable giving, and engaging in tax-loss harvesting—can help reduce your tax burden and set you up for long-term success.

Remember, every situation is unique. Before implementing these strategies, consult with a financial planner or tax professional to ensure they align with your overall goals and circumstances.