Don't Mess With Taxes

Photo by Jill Wellington

Thanksgiving, of course, is the main focus this month. We spend the days leading up to the holiday thinking about what we’re going to cook, or eat if someone else is doing the kitchen heavy lifting. And figuring out a tactful way to deal with that, shall we say, out-there uncle. Good luck!

November is also a great month to make sure we don't fall afoul of tax turkeys. To prevent that, there are some tax moves you can make this month.

Since it’s already four days into the month — my bad; I got caught up with 2025 tax inflation items — let’s get to the following mini cornucopia of five November tax moves.

1. Fine tune your Form W-4: I know, I say this a lot, but it’s an easy move. And you need to do it when there are enough paychecks left to make a difference. The goal is to have enough taken out via withholding so that it comes as close as possible to your eventual annual tax liability. The Internal Revenue Service's online withholding estimator can help you determine the correct amount. Then just give your payroll administrator a new W-4 to make the change.

Making the adjustment as soon as possible means any changes will be spread over more paychecks, creating less of change in your take-home amount. That’s particularly important if you find you need to have more withheld.

2. Add to your nest egg: I mentioned earlier that I got sidetracked last week and weekend with tax-related inflation adjustments. One of those was a post on the amounts you can put into tax-favored retirement plans, both for the 2024 and 2025 tax years. Even if you can’t afford to put in the maximums to workplace plans or IRAs, save as much as you can now.

Yes, I know, you do have until next April 15 to make current-year IRA contributions, either traditional or Roth. But the sooner you get money into the account, the longer it has to grow tax-deferred. Or tax-free if it’s a Roth.

When it comes to workplace retirement plans, Dec. 31 is the last day you can put money for the current tax year into your 401(k) or similar plan. So get to your benefits office now to bump up your contributions for the final pay periods of the year. If the paycheck withholding change you made per November tax move #1 means you’re getting a few more bucks this and next month, you can simply shift that amount to your retirement savings.

3. Don’t waste FSA money: A medical flexible spending account (FSA) offers a great way to set aside pre-tax dollars you can spend on health care costs not covered by your insurance policy. But they have one big drawback. Many still require you to use up all of your FSA money by the end of the benefits year, which is Dec. 31 for most companies. If you don’t, then you lose the funds.

Some companies do give FSA owners a grace period until March 15 to use the money. Others allow a rollover of at least some of the accounts' funds. Make sure you know your employer’s rules. Then spend down your FSA to ensure that it's not wasted.

4. Examine possible itemized expenses: The year before the Tax Cuts and Jobs Act of 2017 became law, around 70 percent of taxpayers claimed the standard deduction. But with the TCJA substantially increasing the standard deduction amounts for each filing status, that percentage has grown. (Check out the 2024 and 2025 numbers, again in one of my inflation series posts). Now around 90 percent of filers use the standard deduction.

Still, some taxpayers have enough deductible expenses to make itemizing worth it. If you think that might be your tax situation, run the numbers now. You might want to fill out a Schedule A this year if you’ve had unusually large medical costs. You can claim those that exceed 7.5 percent of your adjusted gross income. You can make sure you reach that medical claim threshold by scheduling some additional doctor or dental procedures, within budgetary reason and because you need to do so soon anyway, before the end of the year.

The same approach applies to charitable donations. Give the amount you were planning for 2025 to your favorite or another charity this year instead. This bunching of tax-deductible costs lets you shift them so you can itemize this year, then go back to the claiming the standard deduction in 2025.

And since 2024 has been such a horrendously disastrous year, if you incurred substantial losses due to a designated major natural disaster, those expenses also could mean itemizing is warranted.

5. Take or donate your RMD: If you’re a septuagenarian facing required minimum distribution (RMD) by Dec. 31, make sure you have things in place to get that amount by year’s end. If you miss it, you’ll face a penalty.

You also want to look at your upcoming RMD if it’s enough that could push you into a higher tax bracket. In that case, consider directly transferring your RMD amount to a charity you support. When the QCD option was created, the base contribution amount was set at $100,000. But like many tax provisions, it’s subject to, you got it, a potential annual inflation increase. The QCD amount in 2024 is $105,000. If you’re in an early planning mood, or won't face an RMD until 2025, it goes to $108,000 next year.

This option has been around long enough that all have processes in place to make the direct donation, known as a qualified charitable distribution (QCD), as easy and smooth as possible. This gifting of taxable retirement funds allows you to meet the withdrawal rule without having to pay tax on the amount. And while an RMD direct donation means no charitable tax deduction, avoiding a chunk of taxable income is a pretty darn good tax break.

More November tax moves: I know, even these five items take some time. And time is at a premium this busy month.

But taking care of tax tasks now could help you cut your 2024 (or a further in the future) tax bill. So try to make some time for tax moves that fit your situation this November.

And if you're industrious and want some more tax topics to think about, check out the ol' blog's right column for a few more November Tax Moves. They're under the so-named heading, just below the countdown clock ticking off the time left here in tax year 2024.

Once the tax moves are out of the way, you’ll have plenty of time to enjoy Thanksgiving.

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