Page 28 - BusinessWest November 11, 2024

joint filers, $14,600 for singles and for married filing separately, $21,900 for heads of household), and because many itemized deductions have been reduced (such as the $10,000 deduc- tion limit on state and local taxes) or abolished (such as the miscellaneous itemized deduction and the deduction for non-disaster-related personal casu- alty losses).
Some taxpayers may be able to work around these deduction restric- tions by applying a bunching strategy to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good. For example, a taxpayer who
will be able to itemize deductions this year but not next will benefit by mak- ing two years’ worth of charitable con- tributions this year.
Individuals may deduct contribu- tions to charitable organizations up
to a certain percent of their contribu- tion base (generally, AGI). Through 2025, that percentage is 60% for cash contributions and 30% for non-cash contributions.
For year-end planning, it’s benefi- cial to review whether you have char- itable-contribution carryovers from a prior year. If income will decline, care should be taken to use the carryovers before they expire.
Taxpayers with low-basis, highly appreciated stock may want to con- sider funding a charitable contribution with the stock. The charity can sell the stock without incurring any income tax. The donor can also claim a chari- table deduction in the year the gift was handled that is equal to the fair market value without recognizing the gain, subject to limitations.
Tuition Credits
There are two credits that taxpay- ers can claim to offset the cost of edu- cation: the American Opportunity Tax Credit (AOTC) and the Lifetime Learn-
ing Credit. Both credits phase out for higher-income taxpayers.
AOTC is a credit for qualified edu- cation expenses paid for an eligible student for the first four years of high- er education. The maximum annual AOTC is $2,500 per eligible student, and it is refundable up to $1,000.
The Lifetime Learning Credit is
a credit up to $2,000 per return for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This includes undergraduate, graduate, and professional degree courses, as well as courses to acquire or improve job skills. There is no limit on the number
of years a taxpayer can claim this credit.
Taxpayers can claim credits for eligible expenses paid for educa- tion that begins this year or dur-
ing the first three months of next year. A taxpayer who hasn’t already maximized education credits for the student this year should consider making the spring tuition payment before year end. Conversely, if a child is expected to graduate and begin employment, delaying paying tuition might give them the benefit of a tuition credit otherwise limited by the parents’ income level.
Caution: if educational expenses paid and deducted in 2024 are refunded in 2025, be mindful of the tax-benefit rule — the taxpayer may need to include the benefit amount in income this year, even if the stu- dent is no longer the taxpayer’s dependent.
CONCLUSION
It is difficult to do tax planning
in anticipation of what might hap- pen in Washington, especially with this being an election year and the great divide on tax policy between the parties. Maybe the best planning would be to plan for possible tax changes in 2025 depending not only on the party that wins the presiden- tial election, but also on the makeup of the House and the Senate.
It could well be time to acceler- ate gifting, accelerate income, and postpone deductions. Perhaps with optimism, you can imagine that those postponed R&D and interest deductions will give you a deduc- tion at a higher tax rate, and maybe this can lessen the pain of accepting possible increased tax rates.
Finally, remember that this article is intended to serve only as a general guideline. Your personal circumstances will likely require careful examination and should be discussed with your tax adviser. BW
Kristina Drzal Houghton is a partner at the Holyoke-based accounting firm Meyers Brothers Kalicka, P.C.
Richard F. Burkhart, CPA and Salvatore J. Pizzanelli, CPA, JD, PFS
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413.734.9040.
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