As the year draws to a close, there are still several effective strategies you can use to reduce your tax liability before filing season arrives. Here are a few last-minute tactics to consider:
Max Out Contributions to Retirement Accounts
Contributing to tax-deferred retirement accounts like a 401(k) or traditional IRA is one of the best ways to reduce your taxable income. For 2024, you can contribute up to $23,000 to a 401(k) (or $30,500 if you’re 50 or older) and $7,000 to an IRA ($8,000 if you’re 50 or older). These contributions lower your taxable income, helping you save on taxes while boosting your retirement savings.
Make Charitable Donations
Donating to qualified charities is another great way to reduce your tax burden. Contributions can be deducted from your taxable income if you itemize deductions. Even if you don’t itemize, you may still qualify for specific deductions depending on updates to the tax code in your state or federal guidelines. Consult the latest IRS rules for 2024 to ensure compliance.
Harvest Investment Losses
If you’ve had underperforming investments this year, consider tax-loss harvesting. This strategy allows you to sell investments at a loss to offset gains from other investments. You can also use up to $3,000 in losses to offset other taxable income.
Pay Medical Expenses
If your medical expenses exceed 7.5% of your adjusted gross income (AGI), you can deduct them. If you’re close to that threshold, consider paying any outstanding medical bills before year-end to take advantage of the deduction.
Defer Income
If possible, you may want to delay receiving income until the following year. This strategy is particularly useful if you anticipate being in a lower tax bracket next year, helping you lower your overall tax bill.
By taking advantage of these last-minute strategies, you can reduce your tax liability and save money as the 2024 year wraps up. Always consult a tax professional to ensure these methods align with your financial goals and compliance.
