With just a few short weeks left in 2024, this is your last chance to reduce your 2024 tax liability and save your family thousands of dollars.
You don’t need to own a business or rental properties to make a significant dent in your tax bill. Everyday W-2 employees can save with these 16 tax tips!
1. Make Extra 401(k) Contributions
Although you’ll need to pay taxes when you take distributions in retirement, making extra 401(k) contributions before December 31st will allow you to lower your taxable income on this year’s tax return—which could be helpful if you’re in a higher tax bracket!
2. Claim the American Opportunity Tax Credit
The American Opportunity Tax Credit (AOTC) allows students (or their parents) to receive a dollar-for-dollar tax break to help with college costs. Keep in mind that this credit starts to phase out for single filers earning $80,000 – $90,000 per year and joint filers earning a combined $160,000 – $180,000.
3. Do a Roth IRA Conversion in Low-Income Years
With an individual retirement account (IRA), the money is tax-deferred, meaning you won’t pay taxes on that income until you take distributions in retirement. If you convert your IRA to a Roth IRA, however, you’ll pay taxes on your 2024 contributions but eliminate that tax liability in retirement.
4. Clean Out Your Home and Make a Donation
Are you planning to itemize deductions on your 2024 return? You could get a huge tax break by cleaning out your attic, basement, or garage and donating unwanted items that are in good or better condition. Remember to take photos and get a receipt!
5. Prepay Next Year’s Medical Expenses
If you itemize deductions, you can prepay medical expenses for up to a full year. You don’t even need to have the money in your bank account—charge a credit card instead!
6. Track Your Medical Mileage
If you’ve had to use your vehicle to get to and from medical appointments and procedures, track the mileage from these trips. In 2024, you can reduce your taxable income by 21 cents per mile traveled for medical purposes.
7. Itemize Deductions Every Two Years
If you’re falling just short of the threshold for itemized deductions, alternate between itemized deductions and standard deductions by bundling itemized deductions every second calendar year. For example, you could make large charitable donations every two years or pay two years of property taxes in the same year.
8. Buy Your Next Car Before December 31st
Are you in the market for a new car? You could reduce your taxable income for 2024 by making this purchase before the year’s end. Before you do this, make sure you haven’t already maximized your state and local tax (SALT) deduction!
9. Use Stock Sale to Your Advantage
If you have losses from stock, you could use them by selling stocks with unrealized gains. You could also sell stocks with losses to offset capital gains from other stocks. If you’re gifting stocks, give the relative or charity the stock—not the money from the sale.
10. Invest in Municipal Bonds and Annuities
Municipal bonds are tax-free investments at federal, state, and local levels. If you have interest and dividend income from investments that you don’t plan to live on just yet, consider investing in an annuity, which allows you to defer taxes until you need the income.
11. Pay Off Your Student Loan Interest
Paying down your student loans is a great way to not only get out from under that debt but also maximize the student loan interest deduction on your tax return!
12. Reduce Your Alternative Minimum Tax
If you’re one of the unlucky taxpayers who are required to pay Alternative Minimum Tax (AMT), speak with your advisor about ways to reduce your AMT liability.
13. Take a Deduction for Supporting Your Parent
Do you and your siblings support a parent financially? As long as no person is responsible for more than 50% of that support, you might be able to take a deduction on your 2024 tax return.
14. Use Your Health Savings Account
If your employer offers a health savings account (HSA), contribute to it and use that money to pay medical expenses that aren’t covered by insurance. This money can grow tax-free and is carried over from year to year!
15. Rent Out Your Home
If you rent out your home for fewer than 15 days in 2024, whether it’s an area of your house or the entire property, that income is tax-free.
16. Don’t Forget About Alimony Payments
If you got divorced in 2018 or later, you won’t be able to claim a deduction for alimony payments. If you were divorced before 2018, however, you can still deduct them on your 2024 tax return!