Navigating Tax Season: Strategies to Lower Your Taxes or Boost Your Refund for 2024
As tax season approaches, many individuals and families are looking for effective strategies to lower their tax liabilities or maximize their refunds. Financial experts highlight that it’s not too late to make strategic financial moves that can positively impact your tax situation for the year 2024. Here’s a comprehensive guide to several strategies you can leverage to make the most of your tax planning.
Understanding Tax Refunds and Bills
Most individuals anticipate a tax refund—an amount they have overpaid throughout the year via payroll withholdings or estimated payments. Conversely, a tax bill signifies insufficient tax payments made in prior months.
Since the implementation of the Tax Cuts and Jobs Act (TCJA) in 2017, the methods available for reducing tax liabilities have significantly changed. Fewer taxpayers now itemize their deductions due to the higher standard deduction amounts, explained Tricia Rosen, a certified financial planner and enrolled agent. For the upcoming tax year, married couples filing jointly can expect a standard deduction of $29,200, while single filers will have a standard deduction of $14,600.
Boosting Pre-Tax 401(k) Contributions
One effective way to lower your taxable income is to increase your pre-tax contributions to a 401(k) retirement savings plan. By deferring more of your earnings into this plan, you can reduce your adjusted gross income (AGI), thus lowering your taxable income.
As of 2024, the maximum deferral limit has increased to $23,000 from $22,500 in 2023. For individuals aged 50 and over, there’s an additional catch-up contribution allowance of $7,500. It’s an excellent strategy for those seeking an immediate tax break while saving for retirement.
Adjusting Paycheck Withholdings
If you anticipate a tax bill, another smart approach is to modify your paycheck withholdings. Increasing your withholdings now can prevent you from facing an unexpected tax liability later. Tommy Lucas, a financial expert, emphasizes that several life changes—including marriage, a new job, or a change in family status—can affect withholding needs.
It’s essential to reassess your withholdings regularly through Form W-4 and to consider making estimated tax payments to the IRS if you’re self-employed or do not have sufficient withholdings.
Exploring ‘Bunching Deductions’
When considering itemized deductions, one innovative tactic known as bunching deductions can be particularly advantageous as the year comes to a close. This strategy involves combining multiple years’ worth of deductible expenses—such as charitable contributions—into one year to exceed the standard deduction threshold.
For instance, rather than making yearly charitable donations, you could consolidate these contributions into a single tax year. This allows you to claim a significant deduction and potentially lower your taxable income more than if donations were spread out over several years. Financial planners often run projections to see which method yields better tax outcomes for their clients.
Making Charitable Gifts
Charitable contributions have traditionally been a popular avenue for reducing taxable income. Although many individuals and families may opt for the standard deduction, combining gifts into a single tax year can enhance the tax benefits significantly. Remember to keep meticulous records of your charitable donations, including receipts and valuations for non-cash gifts, to substantiate your claims in case of an audit.
Conclusion: Take Charge of Your Tax Situation
As tax deadlines draw near, it’s vital to understand that several proactive strategies can still be pursued for the 2024 tax year. By boosting your 401(k) contributions, adjusting your withholdings, and considering deductions strategically, you can effectively lower your tax liability or increase your refund.
Always consult with a financial professional to tailor these strategies according to your unique financial landscape. Empower yourself with this knowledge, and take actionable steps to make your tax planning more effective and beneficial. The clock is ticking, and there’s still time to leverage these strategies for a financial win in the coming tax season.
