10 Tax Strategies Every Tech Professional Should Consider Before Year-End
As a tech professional, you likely deal with unique tax scenarios that others don't face—stock options, RSUs, high income, or maybe even side hustle income. Taking time now, before year-end, to assess your tax situation could save you thousands and set you up for a stronger financial start to 2025. Here are 10 actionable strategies to consider:
1. Max Out Your Tax-Advantaged Accounts
Maximizing contributions to tax-advantaged accounts like your 401(k) or IRA is one of the easiest ways to reduce taxable income. For 2024, the 401(k) contribution limit is $23,000 if you're under 50 or $30,000 if you're 50 or older. If your employer offers a Roth 401(k), consider contributing there if you expect to be in a higher tax bracket. It doesn't give you a tax break today, but the tax-free growth and withdrawals can be worth it. If you're currently in the top three highest tax brackets (32%, 35%, and 37%), the Roth 401(k) may not be the best option for you right now.
2. Understand and Plan for Stock Compensation
Equity compensation like RSUs or stock options adds complexity to your tax planning. RSUs are taxed as ordinary income when they vest, so you might want to sell immediately to avoid additional capital gains tax. For Incentive Stock Options (ISOs), holding them for over a year post-exercise could qualify them for long-term capital gains treatment, but keep an eye on potential AMT (Alternative Minimum Tax) exposure. Running a tax projection can help you make smart decisions here.
3. Harvest Capital Gains and Losses
If you sold stocks or other investments at a gain this year, offset those gains by selling underperforming assets. Known as tax-loss harvesting, this strategy allows you to reduce your taxable income. Even if your losses exceed gains, you can deduct up to $3,000 in net losses from ordinary income and carry over the rest to future years.
4. Contribute to Your HSA
Health Savings Accounts (HSAs) offer one of the best tax benefits—contributions are pre-tax, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. For 2024, you can contribute $3,850 for individual coverage or $7,750 for family coverage, with an additional $1,000 catch-up if you're 55 or older. Even if you're not using the funds now, HSAs can double as a long-term tax-free savings vehicle.
5. Make the Most of Charitable Contributions
Charitable giving can reduce your tax burden, but there are ways to make it even more effective. If you have appreciated stock, consider donating that instead of cash to avoid capital gains taxes and get a deduction for the full market value. If you're planning to make significant donations, using a donor-advised fund (DAF) lets you bunch several years of giving into one tax year, maximizing your deduction.
6. Use Your FSA Before It's Too Late
If you're contributing to a Flexible Spending Account (FSA) for medical expenses, check how much money is left. Many FSAs have a "use it or lose it" rule, meaning unused funds may be forfeited. Some plans offer a small carryover or grace period, but it's a good idea to schedule those doctor visits, buy prescription glasses, or stock up on eligible medical supplies now.
7. Look into Advanced Retirement Strategies
For those with high income, traditional retirement account limits might feel restrictive. If your employer allows it, explore a Mega Backdoor Roth IRA strategy. This involves making after-tax contributions to your 401(k) and rolling them into a Roth IRA or Roth 401(k). If your plan supports it, it's a powerful way to stash more money into a tax-advantaged account.
8. Track Side Hustle Income and Expenses
If you're freelancing, consulting, or generating extra income outside your W-2 job, take stock of your income and expenses. Deductions like home office costs, equipment, software subscriptions, and internet can reduce your taxable self-employment income. Also, setting up a solo 401(k) or SEP IRA allows you to shelter a portion of that income from taxes while boosting your retirement savings.
9. Stay on Top of State-Specific Tax Opportunities
If you've worked remotely or moved states this year, don't overlook state-specific deductions or credits. States like California, for example, offer credits for energy-efficient home improvements, while others may provide benefits for 529 college savings contributions or tuition expenses. Moving between states can also trigger multi-state tax filings, so now's the time to sort out those details.
10. Plan for Possible 2025 Tax Changes
Right now, the Tax Cuts and Jobs Act (TCJA) rates and brackets are scheduled to expire in 2025, which could mean higher tax rates and reduced deductions. With Trump's 2024 election win, there's a possibility these laws could be extended—but nothing is certain. That's why proactive planning matters.
If you expect higher future tax rates, consider accelerating income into 2024 or 2025 while the current rates remain favorable. This might mean exercising stock options or taking distributions. On the other hand, deferring deductions to 2025—like charitable contributions or large expenses—could make sense if rates rise and those deductions become more valuable.
Proactive Planning is Key
Tech professionals often face more complex tax situations than the average worker, and the strategies above can help you navigate them effectively. Whether maximizing deductions, planning for equity compensation, or leveraging advanced retirement strategies, year-end tax planning can save you money and stress.
If you need help maximizing these strategies or want a personalized tax plan tailored to your unique circumstances, our firm is here to help. We specialize in working with tech professionals like you, ensuring that every opportunity is optimized and no detail is overlooked. Contact us today to schedule a consultation and take control of your taxes before the year ends!
Disclaimer: This post is for informational purposes only, not tax, legal, or financial advice. Always consult a qualified professional about your specific situation.
