As the year draws to a close, it’s essential to take advantage of every opportunity to reduce your tax liability for the 2024 tax season. With just a few weeks left in the year, there are several key strategies you can implement to maximize your tax savings. Here’s a guide to help you make the most of the remaining days in 2024.
1. Contribute to Retirement Accounts
One of the most effective ways to reduce your taxable income is by contributing to retirement accounts. For 2024, you can still make contributions to your IRA or 401(k) to reduce your taxable income for the year.
- Traditional IRA: Contributions to a traditional IRA may be deductible, depending on your income and filing status. The contribution limit for 2024 is $6,500 ($7,500 if you’re 50 or older).
- 401(k): If your employer offers a 401(k) plan, you can contribute up to $22,500 in 2024 (or $30,000 if you’re 50 or older). Contributions to a 401(k) reduce your taxable income for the year.
Even if you’re unable to make a large contribution, any amount can help lower your overall tax bill, so it’s worth taking advantage of these accounts before the year ends.
2. Take Advantage of Tax Credits
Before the year ends, make sure you’re utilizing all available tax credits. Unlike deductions, which reduce your taxable income, tax credits directly reduce the amount of taxes you owe.
- Child Tax Credit: If you have qualifying children, you may be eligible for a tax credit up to $2,000 per child. Ensure your dependents meet the age and income criteria for the credit.
- Energy Efficiency Credits: Planning to upgrade your home with energy-efficient features? Certain improvements, like installing solar panels or energy-efficient windows, may qualify for tax credits. The Residential Energy Efficient Property Credit offers up to 30% of the cost of eligible improvements.
- Education Credits: If you or your dependents are in school, you may qualify for credits such as the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC).
Tax credits can offer significant savings, so be sure to review your expenses and look for any that apply to your situation before the year ends.
3. Take Advantage of Health Savings Accounts (HSAs)
If you have a Health Savings Account (HSA), consider contributing the maximum allowable amount before December 31. For 2024, the contribution limits are $3,850 for individuals and $7,750 for families. Those aged 55 and older can contribute an additional $1,000 as a “catch-up” contribution.
Contributions to an HSA are tax-deductible, and the funds grow tax-free when used for qualified medical expenses. By contributing before the end of the year, you can lower your taxable income while saving for future health-related expenses.
4. Make Charitable Contributions
If you’re looking for ways to reduce your tax bill while giving back to your community, charitable donations are a great option. You can make donations of cash, property, or even stock to qualifying organizations.
- Donating Cash: You can donate up to 60% of your adjusted gross income (AGI) in cash to charity and receive a deduction for the full amount. Be sure to get a receipt from the charity for your records.
- Donating Stocks: If you’ve held appreciated stock for over a year, donating it directly to charity can help you avoid paying capital gains taxes. Plus, you can claim a deduction for the fair market value of the stock.
These contributions can not only help others but also provide valuable deductions on your tax return.
5. Harvest Tax Losses
If you’ve invested in the stock market or other assets and have seen a decrease in value, consider selling some of those investments before the year ends to “harvest” your losses. Tax-loss harvesting allows you to offset any gains you’ve made in the market, potentially reducing your overall taxable income.
For example, if you’ve made $10,000 in capital gains but have $5,000 in losses from other investments, you can offset your gains and only pay taxes on $5,000 of the gains. Keep in mind that you can use losses to offset up to $3,000 in ordinary income per year.
6. Review Your Tax Withholdings
As the year comes to a close, it’s a good idea to review your tax withholdings to ensure you’re on track for the 2024 tax season. If you’ve had any significant life changes, such as getting married, having a child, or starting a new job, adjusting your withholding could help prevent surprises at tax time.
Use the IRS withholding estimator to check if you’ve withheld the right amount throughout the year. If you’ve had too little withheld, you may want to adjust your withholding or make an estimated tax payment before the year ends.
Conclusión
There’s still time to maximize your tax savings before December 31, 2024. By taking action now—whether it’s contributing to retirement accounts, utilizing tax credits, or harvesting losses—you can reduce your tax liability and set yourself up for a financially strong start to the new year. If you’re unsure about which strategies are best for your unique situation, it’s always a good idea to consult with a tax professional at Atlantic Tax Services to ensure you’re making the most of the opportunities available.