Taxes might not be fun, but getting savvy about how you manage them can put a surprising amount of money back in your pocket. With a few strategic moves, you can significantly lower your tax bill or boost your refund. Let’s dive into some expert tips that can help you save big in 2024.
Bulk Up Your 401(k) Contributions
Paying less tax can be as simple as saving more for retirement. The money you put into a 401(k) doesn’t count towards your taxable income. In 2024, you can contribute up to $23,000, or $30,500 if you’re 50 or older. It’s a win-win: save for retirement and save on taxes.
Keep Track of Medical Expenses
Expensive medical bills might feel painful, but they can help at tax time. You can deduct medical expenses that exceed 7.5% of your adjusted gross income. So, if your income is $40,000, you could deduct the portion of your medical expenses that exceeds $3,000.
Donate to Charity
Charitable donations can lower your taxable income. And it’s not just cash donations; items like clothes and household goods count too. Just be sure to keep those receipts. If you itemize deductions, these donations could significantly lower your tax bill.
Claim Dependent Care Credits
Claiming dependent care credits is vital for working parents or guardians to manage childcare costs. The Child and Dependent Care Credit is designed to offset a portion of childcare expenses, enabling parents to work or pursue education by providing financial relief. This credit plays a crucial role in supporting caregivers’ work-life balance, ensuring they can afford quality childcare without compromising their professional or educational aspirations.
Investigate IRA Opportunities
Whether it’s a Roth or a Traditional IRA, these accounts offer different tax advantages. You might get a deduction for contributions to a Traditional IRA, depending on your income and whether you have a retirement plan at work. Plus, for 2024, you can contribute up to $7,000, or $8,000 if you’re over 50. Remember, you’ve got until the tax filing deadline to contribute for the previous year, so there’s no rush.
Use a Dependent Care FSA
Similar to an FSA but for dependent care, this account allows a tax-free way to cover costs like daycare. For 2024, the IRS won’t tax up to $5,000 diverted into this account from your salary, which could mean substantial savings for working parents.
Save with a Health Savings Account (HSA)
If your health plan has a high deductible, an HSA offers a triple tax advantage: your contributions are deductible, the account grows tax-free, and you can spend the money tax-free on qualified medical expenses. Contribution limits for 2024 are $4,150 for individuals and $8,300 for families, with an extra $1,000 allowed if you’re 55 or older.
Tweak Your W-4 for Better Withholding Balance
Your W-4 form tells your employer how much tax to take out of your paycheck. If you’ve ended up owing a lot at tax time, consider increasing your withholding to avoid a future tax bill shock. On the flip side, if you usually get a big refund, decreasing your withholding means more money in each paycheck — think of it as giving yourself an immediate raise.
Opt for Electric Vehicle Credits
Opting for electric vehicle credits supports environmental sustainability and provides financial incentives for consumers. The federal government offers tax credits for purchasing electric vehicles (EVs) to encourage the adoption of cleaner, more sustainable modes of transportation. These credits can significantly reduce the upfront cost of EVs, making them a more attractive option for individuals looking to minimize their carbon footprint while enjoying savings.
Fund an FSA for Medical Expenses
A Flexible Spending Account (FSA) lets you use pre-tax dollars for medical expenses, effectively lowering your taxable income. In 2024, you can contribute up to $3,200. Just make sure to use the funds within the year, although some plans offer a grace period or allow a rollover of a small amount.
Check if You’re Eligible for Earned Income Tax Credit (EITC)
The EITC is a powerful way to reduce your taxes, especially if your income is below $66,819 in 2024. This credit could be worth up to $7,830, depending on your situation, and it’s refundable, which means you could get your money back even if you don’t owe any taxes.
Contribute to a 529 Plan for Education Savings
Putting money aside for education can also offer tax benefits, particularly at the state level, even though federal deductions aren’t available for 529 plan contributions. Watch out for the gift tax if your contributions exceed $18,000 in 2024.
Deduct Home Office Expenses
Deducting home office expenses offers a significant tax advantage for individuals who work remotely. Suppose you have a dedicated workspace in your home used solely for business. In that case, you may be eligible to deduct expenses like a portion of your rent, mortgage, utilities, and internet service. This deduction is particularly valuable for remote workers and self-employed individuals, providing a practical way to reduce taxable income while accommodating the modern trend of working from home.
Sell Off Losing Investments
Unloading poor-performing stocks can work in your favor come tax time. You can use the losses to offset any capital gains you might have. And if your losses exceed your gains, you can use up to $3,000 of that loss to reduce your other taxable income, potentially lowering your tax bill even further.
