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Harvest Capital Losses Before Year-End to Offset Gains and Reduce Taxable Income

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  //business-finance.news-articles.net/content/202 .. d-to-offset-gains-and-reduce-taxable-income.html
  Published in Business and Finance on Monday, December 1st 2025 at 17:45 GMT by Investopedia

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Last‑Minute Tax Moves You Can Still Make in 2024

The Investopedia article “3 Last‑Minute Tax Moves to Make Before Dec. 31 to Take Advantage of Changing Tax Breaks” breaks down three strategic actions investors and taxpayers can still execute before the year‑end to lower their taxable income and take full advantage of the 2024 tax code. The article also references IRS guidance, the Tax Loss Harvesting definition on the IRS website, and other resources for readers who want deeper detail on each tactic. Below is a comprehensive 500‑plus‑word summary that captures the key ideas, the context that underpins them, and the practical steps you can follow.

1. Harvesting Capital Losses to Offset Gains

What it is:
Tax‑loss harvesting is the process of selling securities that have declined in value to realize a loss. That loss can offset capital gains in the same tax year; if losses exceed gains, you can deduct up to $3,000 ($1,500 if married filing separately) against ordinary income. Any remaining losses can be carried forward indefinitely.

Why it matters now:
The 2024 tax code keeps the standard loss‑harvesting rules intact. The article notes that the “wash‑sale” rule—prohibiting a loss deduction if you buy the same security within 30 days—remains in force. For investors who have had a year of stock‑market volatility or who hold out‑of‑the‑money options that have become worthless, this is a no‑lose strategy. By realizing losses, you can lower your current‑year tax liability and potentially create a tax‑efficient basis for future gains.

Practical steps:

1. Review your portfolio for unrealized losses.
   Use your brokerage account or a spreadsheet to flag positions that are below purchase price.

2. Sell the losing positions before the last day of the year.
   Make sure to stay 30 days away from buying the same or “substantially identical” securities, to avoid a wash sale.

3. Reinvest the proceeds strategically.
   You may want to put the cash into a diversified index fund, a sector you’re bullish on, or even a tax‑advantaged account such as an IRA or 401(k).

4. Document everything.
   Keep records of sale dates, amounts, and the basis of each security, as the IRS will require this information if you’re ever audited.

Link references in the article:
- The article links to the IRS page on capital gains and losses for readers wanting to see the official rules.
- It also references a third‑party tax‑loss‑harvesting calculator for estimating the benefit.

2. Deferring Income or Accelerating Deductions

What it is:
Because the tax year ends on December 31, you can shift income to 2025 or bring deductions into 2024 to reduce your current‑year taxable income. The article explains two complementary tactics:

• Deferring income: If you’re a contractor, freelancer, or have control over when a client pays you, negotiate to receive the payment in January rather than December.
• Accelerating deductions: Pay out expenses that qualify as deductible in 2024 (e.g., mortgage interest, property taxes, charitable donations, business expenses, or even the cost of a new roof if you own a home).

Why it matters now:
The article notes that many taxpayers are approaching a higher marginal tax bracket by the end of the year. Even a modest reduction in taxable income can push you into a lower bracket, sparing you tens or hundreds of dollars in tax. Moreover, the 2024 “qualified charitable distribution” rule allows IRA owners over 70½ to give up to $100,000 in a single year tax‑free, so you might consider a charitable distribution instead of a traditional deduction.

Practical steps:

1. Speak with your employer or clients.
   Ask whether you can delay invoices until 2025. Even a few thousand dollars can make a difference.

2. Schedule deductible expenses.
   For homeowners: prepay a mortgage payment or property taxes for the next year.
   For business owners: buy new equipment or supplies that qualify for Section 179 expensing or bonus depreciation.

3. Make charitable contributions.
   Consider donating to a qualified charity by the end of December. If you’re over 70½, you can also use the qualified charitable distribution (QCD) to satisfy your required minimum distribution (RMD) from an IRA without increasing taxable income.

4. Check your tax bracket.
   Use a quick IRS tax table or online calculator to estimate how much a $5,000 reduction in income will save you.

Link references in the article:
- The article points to IRS Publication 550 for investment income and deductions.
- It also links to the “Qualified Charitable Distribution” FAQ on the IRS website for QCD rules.

3. Taking Advantage of New Tax Breaks and Changes

What it is:
Tax law can change from year to year. The article highlights a few 2024‑specific provisions that can help taxpayers reduce liabilities or increase retirement savings:

• Roth IRA conversions: If you expect your tax bracket to rise (e.g., after a large windfall or an upcoming inheritance), converting a traditional IRA to a Roth now could be cheaper than converting later.
• Health Savings Accounts (HSAs): The 2024 contribution limits increased ($3,850 for individuals and $7,750 for families). If you’re eligible, max out your HSA to reduce taxable income while building a tax‑free growth account for future medical costs.
• Qualified Opportunity Zones: Investments in certain low‑income communities can defer or even reduce capital gains taxes if held for at least 10 years. Even a small allocation can have long‑term benefits.
• Estate‑tax thresholds: The federal estate‑tax exemption increased to $12.92 million per individual in 2024. While this change primarily affects estate planning, it’s worth reviewing your estate documents to ensure the new exemption is applied.

Why it matters now:
The article emphasizes that some of these provisions only apply to 2024 or are only available for a limited window. For example, the 2024 HSA limits will reset in 2025, and Roth conversions scheduled for Dec 31 will be taxed at 2024 rates. Thus, acting now can lock in lower taxes.

Practical steps:

1. Assess your current tax bracket and future expectations.
   If you anticipate higher income next year, a Roth conversion now may reduce overall tax.

2. Check HSA eligibility.
   Verify you’re enrolled in a high‑deductible health plan (HDHP). If so, contribute up to the 2024 limits.

3. Explore Opportunity Zone funds.
   Look at reputable funds or local projects that qualify. The IRS provides a list of certified zones; many brokerage firms offer dedicated ETFs.

4. Review estate documents.
   If you haven’t updated your will or trust, consider a professional review to ensure the new exemption applies.

Link references in the article:
- The article links to the IRS’s “Roth IRA Conversion” page for rate calculations.
- It also references the HSA.gov page for contribution limits and eligibility rules.
- A link to the IRS “Qualified Opportunity Zones” guide provides details on how to invest.

Putting It All Together

1. Start with Losses – Quickly scan your portfolio and harvest any ready losses before the year ends.
2. Shift Income & Deductions – Talk to clients, prepay deductible expenses, and consider charitable giving or QCDs.
3. Leverage New Breaks – Max out your HSA, consider a Roth conversion, or invest in Opportunity Zones if it aligns with your financial plan.

Key Takeaways

• Tax‑loss harvesting is a powerful, no‑risk way to reduce current tax liability.
• Deferring income or accelerating deductions can shift you into a lower bracket.
• New tax‑breaks (Roth conversions, higher HSA limits, Opportunity Zones) offer additional savings if you act before the year ends.

By acting on these three categories, you can make significant last‑minute changes that pay off on your 2024 tax return while setting the stage for future financial health.