4 Money Moves To Make Right Now To Lower Your 2024 Tax Bill
Written by
Adam Palasciano
Edited by
Amber Barkley
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Taxes: Everyone has to pay them, and they’re just another part of everyday life. Whether it’s passive income earned from dividends payments, active income earned from work or capital gains from the sale of an asset, you’ll owe taxes to Uncle Sam one way or another.
However, it’s still possible to reduce your taxes this year and increase the amount of money you get to keep.
Here are four money moves to make right now to lower your 2024 tax bill, according to H&R Block and Barron’s. Next, read about the year-end tax moves the wealthy make.
Look Into Tax Credits
Be sure to take full advantage of every tax credit available to you. Tax credits offer a dollar-for-dollar tax reduction, making them more beneficial than most deductions, which typically only reduce your tax liability by a certain percentage based on your tax bracket.
Some types of tax credits include the Earned Income Tax Credit, Retirement Savers Contribution Credit, American Opportunity Tax Credit, Lifetime Learning Credit and the Child and Dependent Care Credit. If you’re unsure of which tax credits you may be eligible for, consult with a financial professional who can help you file your 2024 tax return. This way, you don’t leave any tax credits on the table.
Contribute to Your Retirement Accounts
Making 401(k) or IRA contributions is a smart way to reduce your tax liability. The greater the percentage of your gross income that you allocate toward your pre-tax retirement accounts this year, the less taxes you’ll owe to the IRS, since you’ll be deferring tax liability until later in life.
Don’t forget that even small contributions starting from your 20s will mean leveraging compound interest, which allows your savings to grow exponentially over time while lowering your tax bill now.
Tax-Loss Harvesting
Tax-loss harvesting happens when you sell off a losing asset to offset, or even cancel, your tax liability on the sale of an asset that made significant gains. This way, you’ll be able to keep more of the money earned from the gains.
If you don’t sell off any of your losing assets, you’ll be subject to short or long-term capital gains tax on realized profits, depending on how long you held the asset before you sold it off. It’s crucial to sell off any losing assets by Dec. 31 to take advantage of tax-loss harvesting.
Check Your Tax Withholding Status
It’s important to figure out the right tax withholdings to make sure you have sufficient take-home pay throughout the year, instead of waiting for a tax refund when you file.
Withholding too little can mean you’ll be responsible for a big tax bill come next April. Meanwhile, withholding too much can mean that you give Uncle Sam an interest-free loan all year. It’s a good idea to use the IRS’s Tax Withholding Estimator to determine the correct withholdings based on your income.
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