[UNITED STATES] As the 2024 tax season approaches, many taxpayers are looking for ways to minimize their tax bill or maximize their refund. While it's easy to think that the tax deadline is too late to make a difference, there are still strategies you can employ to lower your 2024 taxes. Whether you’re filing early or waiting until the last minute, taking advantage of the following strategies can help you save money. Here are the most effective ways to reduce your taxable income and potentially increase your refund in 2024.
1. Maximize Your Retirement Contributions
One of the most effective ways to reduce your tax bill in 2024 is by contributing to retirement accounts. Contributions to traditional 401(k) or IRA accounts are tax-deductible, meaning the more you contribute, the lower your taxable income becomes. For the 2024 tax year, individuals can contribute up to $22,500 to a 401(k), or $30,000 if you're 50 or older. Similarly, you can contribute up to $6,500 to an IRA ($7,500 if you're 50 or older).
Quote: According to experts, "Retirement account contributions are a tried-and-true way to reduce your taxable income, and they can help you save for your future while lowering your current-year tax liability."
By taking full advantage of these limits, you can lower your adjusted gross income (AGI) and potentially move into a lower tax bracket. It’s a win-win situation—boosting your retirement savings and reducing your taxable income for the year.
2. Contribute to a Health Savings Account (HSA)
If you're enrolled in a high-deductible health plan (HDHP), you can also lower your tax bill by contributing to a Health Savings Account (HSA). Contributions to an HSA are made with pre-tax dollars, reducing your taxable income, and withdrawals for qualified medical expenses are tax-free.
In 2024, the contribution limit for an individual is $3,850, and for families, it’s $7,750. If you're over the age of 55, you can make an additional catch-up contribution of $1,000.
Quote: Tax professionals often emphasize, "An HSA is a triple-tax advantage account, offering tax deductions when you contribute, tax-free growth on your investments, and tax-free withdrawals for medical expenses."
Since medical costs are often unpredictable, contributing to an HSA not only lowers your tax bill but provides a valuable financial cushion for healthcare expenses down the road.
3. Consider Charitable Donations
Making charitable contributions is another powerful strategy to reduce your tax bill. You can deduct cash donations, as well as donations of property or goods, to qualifying organizations. In 2024, if you itemize your deductions, you can deduct up to 60% of your adjusted gross income for cash donations to public charities.
Even if you don’t itemize your deductions, the IRS allows for a deduction of up to $300 ($600 for married couples) for cash donations made to qualified charities in 2024.
Quote: As highlighted by financial planners, "Charitable giving not only supports your favorite causes but also provides a significant opportunity to reduce your taxable income while benefiting society."
If you’re considering donating stock or other appreciated assets, doing so can help you avoid paying capital gains tax while still taking the deduction for the fair market value of the donation.
4. Use the Standard Deduction to Your Advantage
In some cases, the standard deduction may provide a larger tax benefit than itemizing. For 2024, the standard deduction is $13,850 for individuals and $27,700 for married couples filing jointly. For those over the age of 65, the deduction is even higher.
Quote: “It’s always important to compare your total itemized deductions against the standard deduction to ensure you’re taking the larger of the two,” advises one tax expert.
If your total deductions don’t exceed the standard deduction, you might want to take advantage of it instead of itemizing. The standard deduction simplifies tax filing and ensures you're not leaving any money on the table.
5. Take Advantage of Tax Credits
While deductions lower your taxable income, tax credits reduce the amount of tax you owe directly. In 2024, several credits may help you save money:
Child Tax Credit: Up to $2,000 per child under 17, with up to $1,500 of that being refundable.
Earned Income Tax Credit (EITC): For low- to moderate-income workers, this credit could result in a substantial refund.
American Opportunity Credit: A credit of up to $2,500 for qualified education expenses, with 40% of it being refundable.
Quote: “Tax credits are often the most valuable tool in lowering your tax liability, as they directly reduce the amount you owe to the IRS,” explains a tax analyst.
Ensure that you’re eligible for any credits you may qualify for and take full advantage of them.
6. Accelerate Deductions and Defer Income
If you’re looking to lower your taxable income for 2024, consider accelerating your deductions into this year. For example, you might prepay some of your mortgage interest or donate to charity before December 31 to increase your deductions. On the flip side, you might be able to defer income into 2025 if you're expecting a lower income next year, or if you want to avoid pushing yourself into a higher tax bracket.
Quote: A tax strategist advises, “Timing is everything. By carefully planning when you claim deductions and income, you can maximize your tax-saving strategies.”
Deferring income can be particularly helpful if you’re nearing the top of a tax bracket, as it can push some of your income into the following year, lowering your overall tax burden.
7. Reevaluate Your Withholding
One of the easiest ways to ensure you’re not overpaying taxes throughout the year is by adjusting your withholding. If you've been getting large refunds in previous years, it may mean you're withholding too much from your paycheck. On the other hand, if you owe taxes every year, you may want to withhold a bit more.
The IRS offers a Tax Withholding Estimator on its website to help you determine the correct withholding amount for your situation.
Quote: “Adjusting your withholding during the year can help you avoid a big surprise at tax time, whether that’s a large bill or a small refund,” says a tax consultant.
Reevaluating your withholding allows you to better control your cash flow throughout the year, so you’re not giving the IRS an interest-free loan.
8. File Early and Avoid Penalties
If you’re due a refund, filing early can help you get your money faster. It also gives you more time to resolve any issues with your tax return if they arise. In 2024, the IRS will begin accepting returns in mid-January, so don’t wait until the last minute to file. Filing early also reduces the chances of tax fraud, as criminals often file fraudulent returns in an attempt to claim refunds before legitimate taxpayers.
Quote: "Filing your taxes early ensures you can get your refund sooner and avoid any unnecessary delays or complications," says one financial planner.
If you owe taxes, filing early can help you plan ahead and pay by the due date, which avoids penalties and interest.
9. Consider Tax Loss Harvesting
If you have investments in taxable accounts, tax loss harvesting can help reduce your tax burden. By selling investments that have lost value, you can offset any gains you've realized during the year, reducing your taxable income. This strategy works especially well in a year when you have capital gains or other taxable income.
Quote: “Tax loss harvesting allows you to strategically sell assets to reduce your taxable income, a smart move for many investors,” notes a wealth advisor.
Be sure to consult with a financial advisor or tax professional to implement this strategy correctly and maximize its benefits.
Tax season doesn’t have to be stressful if you know the right moves to make. Whether you’re looking to lower your 2024 tax bill or boost your refund, there are numerous strategies at your disposal. By maximizing retirement contributions, contributing to an HSA, taking advantage of tax credits, and making smart decisions about withholding and deductions, you can significantly impact your tax outcome.
The key to lowering your tax bill or maximizing your refund is planning. The earlier you start, the more time you have to make strategic decisions that can help you save. Keep these strategies in mind, and you’ll be on the right track to reducing your 2024 tax liability or increasing your refund.
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