Cut Your Tax Bill in 2024: Strategies for April

As the year comes to an end, it's time to start thinking about your taxes for 2024. While you can't control the tax laws, you can certainly influence your tax liability by taking advantage of various strategies. Here are some effective ways to cut your tax bill in 2024 and be better prepared for April.



1. Tax-Loss Harvesting: This strategy involves selling underperforming investments and using the losses to offset capital gains. By doing so, you can lower your taxable income and potentially reduce your tax liability. However, be mindful of the wash-sale rule, which disallows losses on securities sold at a loss if you buy back the same or a substantially identical security within 30 days. To avoid this, consider investing in a similar but not substantially identical security.
2. Contribute to Retirement Accounts: Funding your retirement accounts isn't just important for your future; it can also work wonders for your tax bill. Contributing to a traditional IRA or participating in an employer-sponsored 401(k) allows you to put money into these accounts tax-free, which could amount to significant savings. In 2024, anyone under 50 can contribute up to $18,000 annually to a 401(k) and $5,500 to an IRA. Workers 50 and older get a catch-up allowance that raises these limits to $24,000 and $6,500, respectively.
3. Charitable Donations: Supporting your favorite causes can help you lower your taxes. Any time you donate to a registered charity, you can take a deduction for the amount you give away. Don't have cash to contribute? Clean out your attic and cull your closets, because you can also take a deduction for donating goods, provided you retain a detailed receipt. Make sure to only claim the current fair market value (not the original cost or value) of the items you're parting with.
4. Homeowner Tax Breaks: Homeownership can pay dividends from a tax perspective. First, you can deduct the interest you pay on your mortgage, provided your loan doesn't exceed the $500,000 mark if you're a single tax filer, or the $1 million mark for couples filing jointly. You can also write off your property taxes, and any points you paid on your mortgage. Finally, if you're paying a private mortgage insurance (PMI) premium (which banks require when your down payment is below 20 percent of your home's purchase price), you can claim a deduction for it as long as your income is $54,000 or less as a single filer, or $109,000 or less a couple filing jointly.
5. Flexible Spending Accounts (FSAs): We all inevitably spend some money each year on medical care, but if you open an FSA, you can arrange to pay for those expenses with pre-tax dollars, thus lowering your overall tax bill. For 2024, you can put up to $2,600 into an FSA. If you think you'll rack up that much in medical bills, and your effective tax rate is 25 percent, maxing out your FSA will result in a $650 tax savings.

By implementing these strategies, you can effectively cut your tax bill in 2024 and be better prepared for April. Keep in mind that tax laws can change, so it's essential to stay informed and consult with a financial advisor or tax professional to ensure you're taking advantage of the most up-to-date strategies.