5 Ways To Help Reduce Your Taxes Now
Published on December 3, 2024 | Fidelity Investments

As the year comes to a close, many individuals are looking for strategies to minimize their tax liability. Proactive planning and smart financial decisions can lead to significant savings. Here are five ways you can help reduce your taxes now, ensuring you keep more of your hard-earned money.

1. Maximize Your Retirement Contributions

One of the most effective ways to lower your taxable income is by contributing to retirement accounts. For the tax year 2024, you can contribute up to $22,500 to your 401(k) or similar employer-sponsored plans, with an additional catch-up contribution of $7,500 if you are 50 or older. Contributions to traditional IRAs can also be deducted from your taxable income, with contribution limits set at $6,500 (or $7,500 for those aged 50 and older).

This not only builds your retirement savings but also reduces your current tax burden. If you haven’t yet maximized these contributions for the year, consider making additional contributions before the deadline.

2. Utilize Health Savings Accounts (HSAs)

If you have a high-deductible health plan, consider maximizing your contributions to a Health Savings Account (HSA). Contributions to HSAs are tax-deductible, and the money can grow tax-free if used for qualified medical expenses. For 2024, the contribution limits are $3,850 for individuals and $7,750 for family coverage, with an additional $1,000 for those aged 55 and older.

Contributing to an HSA not only provides immediate tax benefits but also serves as a tax-free resource for future healthcare expenses.

3. Take Advantage of Tax Credits

Tax credits directly reduce the amount of tax you owe, making them far more beneficial than deductions. Research the various credits available, such as the Earned Income Tax Credit (EITC), Child Tax Credit, and education-related credits like the American Opportunity Tax Credit or the Lifetime Learning Credit.

Ensure you’re aware of the eligibility criteria and keep all necessary documentation to claim these credits. Depending on your situation, these credits could lead to significant savings.

4. Consider Tax-Loss Harvesting

If you have investments in a taxable account, you may want to explore tax-loss harvesting. This strategy involves selling investments that have lost value to offset capital gains from profitable investments. By doing this, you can effectively reduce your taxable income.

Keep in mind the IRS rules regarding wash sales, which prevent you from claiming a loss if you buy the same security within 30 days before or after the sale. Consulting a financial advisor can help you navigate these rules effectively.

5. Make Charitable Contributions

Donating to charity not only allows you to support causes you care about but also can provide significant tax relief. If you itemize your deductions, charitable donations can reduce your taxable income. You can donate cash or goods, and if you have appreciated assets, donating them can help you avoid capital gains tax while still providing a deduction based on their fair market value.

Additionally, consider timing your donations. If you haven’t yet made your contributions for the year, consider doing so before December 31st to ensure you capture the deduction on your upcoming tax return.

Conclusion

As 2024 draws to a close, now is the time to evaluate your financial situation and implement strategies to reduce your tax liability. By maximizing your retirement contributions, utilizing HSAs, taking advantage of tax credits, considering tax-loss harvesting, and making charitable contributions, you can significantly lower your taxable income and keep more money in your pocket.

Always consult with a tax professional to ensure you’re making the best choices for your financial situation and to stay informed about any changes in tax laws that could affect your planning.

By taking these steps now, you’re not just preparing for tax season; you’re laying the groundwork for a more secure financial future.

For more financial tips and solutions, visit Fidelity Investments.

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