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In the current job market, some job seekers are encountering heightened competition. Nevertheless, the prospect of extended unemployment and reduced income for the year 2024 could present an opportunity for strategic tax planning. According to certified financial planner Jaime Quinones of Stockade Wealth Management in Marlboro, New Jersey, one potential benefit of a job layoff is the chance to temporarily drop into a lower federal income tax bracket. This shift could open doors for future tax savings, as even a span of three to four months without regular income could significantly impact your tax bracket for 2024. However, any increase in income from future employment may offset some of these potential savings.

When faced with the prospect of a lower income year, it may be advantageous to consider converting pretax or nondeductible IRA funds to a Roth IRA. Catalina Franco-Cicero, a wealth advisor with Tobias Financial Advisors in Plantation, Florida, emphasizes that this strategy is not without its tax implications. While you will still be responsible for paying regular income taxes on the converted balance, the overall tax bill could be reduced due to the lower tax bracket. By moving funds to a Roth IRA, you could capitalize on tax-free growth and enjoy future tax-free distributions. The decision to pursue this conversion does not have to be immediate. Waiting until closer to the year’s end will provide a clearer picture of your anticipated income for 2024.

If your income for 2024 is projected to be low enough, you may be eligible to take advantage of the 0% long-term capital gains tax bracket. Single filers with taxable income of $47,025 or less, as well as married couples filing jointly with taxable income of $94,050 or less, could potentially fall within this bracket. The wide range of the 0% bracket, particularly for married couples, means that even those with six-figure earnings could benefit. This bracket is determined based on taxable income, calculated by deducting standard or itemized deductions from adjusted gross income.

One notable advantage of the 0% long-term capital gains tax bracket is the opportunity it provides to reset the purchase price, or basis, of an asset. By selling the asset and immediately repurchasing it, you can reset the basis, thereby saving on future capital gains. However, before engaging in this strategy, it is essential to run projections on your anticipated 2024 taxable income. Additionally, long-term plans for the asset must be considered. For assets intended to be passed on to heirs, the strategy may not be suitable, as these assets will automatically receive a stepped-up basis upon your passing, as Quinones clarifies.

Despite the challenges posed by a competitive job market, there are avenues through which individuals can optimize their tax savings in a year of diminished income. By strategizing around Roth IRA conversions and leveraging the 0% long-term capital gains tax bracket, taxpayers can make the most of a lower income year and set themselves up for future financial success. It is crucial to work closely with financial advisors and tax professionals to tailor these strategies to your specific circumstances and maximize the benefits available.

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