10 Tax Tips To Lessen Costs And Increase Income
10 Tax Tips To Lessen Costs And Increase Income
Here are 10 key tax tips to help lessen costs and increase income:
1. Maximize Retirement Account Contributions
Contributing to tax-advantaged retirement accounts is one of the most effective ways to reduce your taxable income and save for the future2[1].
- For 2024, you can contribute up to $23,000 to a 401(k) if you're under 50, or $30,500 if you're 50 or older[3]. - The IRA contribution limit for 2024 is $7,000 if you're under 50, or $8,000 if you're 50 or older[3]. - Contributions to traditional 401(k)s and IRAs are made with pre-tax dollars, reducing your taxable income for the year[2].
2. Utilize Health Savings Accounts (HSAs)
HSAs offer triple tax benefits - contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free2[2].
- For 2024, you can contribute up to $4,150 for individual coverage or $8,300 for family coverage[7]. - If you're 55 or older, you can contribute an additional $1,000[7].
3. Take Advantage of Tax Credits
Tax credits provide a dollar-for-dollar reduction in your tax bill, making them more valuable than deductions[15].
- Common credits include the Earned Income Tax Credit, Child Tax Credit, and education credits[2]. - Research available credits and ensure you claim all that you qualify for.
4. Itemize Deductions When Beneficial
While the standard deduction is simpler, itemizing can lead to greater tax savings if your deductible expenses exceed the standard deduction amount1[3].
- Common itemized deductions include mortgage interest, state and local taxes, and charitable contributions[14]. - For 2024, the standard deduction is $14,600 for singles and $29,200 for married couples filing jointly[14].
5. Make Charitable Contributions
Donating to qualified charities can reduce your taxable income if you itemize deductions6[4].
- Consider donating appreciated assets to avoid capital gains taxes. - Look into donor-advised funds for more strategic charitable giving[13].
6. Harvest Tax Losses
Tax-loss harvesting involves selling investments at a loss to offset capital gains and reduce your tax liability[11].
- You can use capital losses to offset up to $3,000 of ordinary income per year. - Excess losses can be carried forward to future tax years.
7. Contribute to a Flexible Spending Account (FSA)
FSAs allow you to set aside pre-tax dollars for eligible medical or dependent care expenses[8].
- For 2024, you can contribute up to $3,200 to a healthcare FSA[8]. - Be mindful of the "use-it-or-lose-it" rule for FSAs.
8. Consider Business Deductions
If you're self-employed or own a small business, take advantage of available business deductions1[2].
- Common deductions include home office expenses, vehicle expenses, and business-related travel costs. - Look into the Qualified Business Income (QBI) deduction, which allows eligible self-employed individuals to deduct up to 20% of their qualified business income[13].
9. Time Your Income and Expenses
Strategic timing of income and expenses can help manage your tax liability7[5].
- Consider deferring income to the next tax year if you expect to be in a lower tax bracket. - Accelerate deductible expenses into the current year if you expect to be in a higher tax bracket.
10. Review Your Tax Withholdings
Adjust your W-4 to ensure you're withholding the right amount of taxes from your paycheck[16].
- Aim to withhold enough to avoid penalties but not so much that you're giving the government an interest-free loan. - Review and adjust your withholdings, especially after major life changes like marriage, divorce, or having a child.
By implementing these strategies, you can potentially reduce your tax burden and keep more of your hard-earned money. However, tax laws are complex and constantly changing, so it's advisable to consult with a tax professional for personalized advice tailored to your specific situation.