With only five weeks until 2025, it’s crucial to take action on key year-end tax strategies to maximize savings and prevent a large tax bill on April 15. This includes taking advantage of credits that could be reduced in 2025 under proposed changes by President Donald Trump and Republicans in Congress.

For business owners, high earners, and retirees, there are specific measures you can take to decrease your taxable income and capital gains taxes for 2024. Strategies include maximizing contributions to retirement accounts and making charitable donations. These steps can help reduce your tax bill for the year.

8 Simple Ways to Reduce Your 2024 Tax Bill

Reducing your tax bill doesn’t have to be complicated. Taking a few straightforward steps can lower your tax burden and keep more of your earnings. Here are eight practical strategies to help you save on your 2024 taxes.

1. Max Your Contributions to Your Retirement Account

By increasing your contributions to your retirement accounts by the end of the year, you can reduce your taxable income and boost your retirement savings. For 2024, the IRS has established these contribution limits:

• 401(k) Plans: The maximum employee contribution limit is $23,000. Individuals aged 50 or older can make an additional catch-up contribution of $7,500, increasing the total to $30,500.
• Individual Retirement Accounts (IRAs): The contribution limit is $7,000, with an extra $1,000 catch-up contribution for those 50 or older, for a total of $8,000.

It’s crucial to remember that contributions to a 401(k) must typically be made by December 31, 2024, whereas you can make IRA contributions for the 2024 tax year until April 15, 2025.

If you received a salary increase mid-year or started a job later in the year, consider making additional contributions before year-end to meet these limits. You can contribute to both within the same year if you have a 401(k) and an IRA. However, keep in mind that income limits could affect the deductibility of your IRA contributions if you have access to a workplace retirement plan.

Check your contributions to date to ensure you’re making the most of your retirement savings within these limits. Adjusting your contributions before year-end can help you maximize the tax benefits of these accounts.

Suggestions for Top Providers

1. Charles Schwab

Charles Schwab offers various accounts with different minimum balance requirements and fees. For instance, the Schwab One® Brokerage Account does not require a minimum deposit, whereas the Schwab Intelligent Portfolios®, an automated investing service, requires a minimum of $5,000.

Charles Schwab does not charge commission fees for online stock and ETF trades, transaction fees for over 4,000 mutual funds, and charges a $0.65 fee per options contract. The investment vehicles available include Robo-advisor services like Schwab Intelligent Portfolios® and Intelligent Portfolios Premium™, various types of IRAs such as Roth, Traditional, Inherited, Rollover, and Custodial IRAs, and a Personal Choice Retirement Account® (PCRA).

Additionally, Schwab offers brokerage and trading accounts like the Schwab One® Brokerage Account, Organization Account, Global Account, and Schwab Trading Powered by Ameritrade. For investment options, customers can choose from bonds, stocks, certificates of deposit (CDs), mutual funds, and exchange-traded funds (ETFs). Charles Schwab also provides comprehensive retirement planning tools and resources to assist investors in managing and planning their retirement savings effectively.

2. Fidelity Investments

Fidelity Investments offers a range of account options with varying requirements and fees. To open a Fidelity Go® account, no initial deposit is required, but a minimum balance of $10 is needed to start investing based on the selected strategy. Fidelity charges no commission fees for online stock, ETF, and options trades and no transaction fees for over 3,400 mutual funds. However, options trades do incur a $0.65 fee per contract. Fidelity Go® waives advisory fees for accounts under $25,000; accounts exceeding this balance are subject to a 0.35% annual fee, including unlimited one-on-one coaching calls with a Fidelity advisor.

Regarding investment vehicles, Fidelity offers the Robo-advisor service Fidelity Go®, a variety of IRAs, including Traditional, Roth, and Rollover IRAs, and standard brokerage and trading accounts under Fidelity Investments Trading. They also provide specialized accounts like the Fidelity Investments 529 College Savings and Fidelity HSA®. Investors can choose from various investment options, including stocks, bonds, ETFs, mutual funds, CDs, options, and fractional shares.

Additionally, Fidelity provides extensive educational resources, including tools and in-depth research from over 20 independent providers, designed to help investors make informed decisions.

2. Adjust Your W-4 Form

The W-4 form, known as the “Employee’s Withholding Certificate,” is used by U.S. employees to tell their employers how much federal income tax to deduct from their wages. Filling out this form correctly ensures that the right amount of tax is withheld, matching your actual tax liability. If you have previously received a large tax bill and want to avoid a similar situation, consider increasing the amount withheld to reduce what you owe at tax time. This means more tax will be taken from each paycheck, which could decrease the amount you owe when you file your taxes.

If you tend to get large refunds, it may be because too much tax is being withheld. Decreasing your withholding will allow you to keep more money throughout the year instead of getting it back as a refund after you file your taxes.

It’s smart to check and possibly update your W-4 after major life or financial changes, including:

• Marriage or Divorce: Changes in your marital status can affect your taxes.
• Birth or Adoption of a Child: New dependents can make you eligible for more tax credits.
• New Job or Job Loss: Changes in employment can affect your income and taxes.
• Significant Income Changes: Major increases or decreases in your income can change your tax liability.

Keeping your W-4 current helps ensure that your withholdings are accurate, preventing unexpected tax bills or excessive refunds. You can update your W-4 at any time by giving a new form to your employer. The IRS also offers a Tax Withholding Estimator to help you determine the right withholding amount based on your financial situation.

3. Using the Tax-Loss Harvesting Strategy

Tax-loss harvesting is a method where investors sell off investments that have decreased in value to counterbalance capital gains, effectively reducing their taxable income. This strategy proves beneficial during years when some investments perform poorly, even if the overall market posts gains. The process begins by reviewing your portfolio to identify underperforming investments.

When these are identified, selling them results in a capital loss. This loss can offset any capital gains from other investments. If your capital losses are greater than your gains, you can deduct up to $3,000 ($1,500 if married and filing separately) of the surplus losses against your regular income each year. Any leftover losses can be carried over to subsequent tax years.

To maintain your investment strategy, you should consider reinvesting in similar, yet not identical, assets shortly after selling, careful to avoid the wash sale rule. This rule prevents claiming a tax deduction if you repurchase the same or a nearly identical asset within 30 days of the sale.

There’s a notable exception for cryptocurrencies; currently, they are not subject to the wash sale rule because they are treated as property rather than securities. This classification allows investors to sell cryptocurrencies at a loss and repurchase them immediately, maintaining their position while still realizing the tax loss.

However, there are ongoing legislative discussions about potentially applying the wash sale rule to cryptocurrencies, so staying informed about these changes is crucial. Given the complexities and potential changes in tax laws, consulting with a tax professional is recommended to ensure that you use tax-loss harvesting effectively and by the law.

4. Claiming Tax Credits

Tax credits are vital tools that lower your tax bill with a dollar-for-dollar reduction. These differ from deductions as they decrease your tax due rather than just your taxable income. Several key tax credits are accessible to U.S. taxpayers:

• The Child Tax Credit (CTC) for 2024 and 2025 offers up to $2,000 per qualifying child under 17. The full credit is available for single filers earning up to $200,000 and joint filers up to $400,000, beyond which the credit gradually reduces. Up to $1,700 of this credit is refundable, increasing your tax refund even if you have no tax liability.
• The Earned Income Tax Credit (EITC) supports low- to moderate-income workers and varies depending on income, filing status, and the number of qualifying children. For 2024, the maximum credit ranges from $632 with no qualifying children to $7,830 with three or more. Eligibility for the EITC requires earned income and adhering to specific income limits, with a cap on investment income at $11,000 for the year.
• The American Opportunity Tax Credit (AOTC) provides up to $2,500 per student for the first four years of higher education for those pursuing a degree or recognized credential, enrolled at least half-time, and without a felony drug conviction. Forty percent of the AOTC, up to $1,000, is refundable.
• The Lifetime Learning Credit (LLC) offers 20% of the first $10,000 in qualified education expenses, up to a maximum of $2,000 per return. It is available for all years of post-secondary education, and for courses to improve or acquire job skills, with no limit on the number of years, it can be claimed. The credit phases out for incomes between $80,000 and $90,000 for single filers and between $160,000 and $180,000 for joint filers.
• Lastly, the Saver’s Credit encourages low- to moderate-income individuals to save for retirement by offering a credit worth 10%, 20%, or 50% of contributions to retirement accounts, up to $2,000 ($4,000 if filing jointly), based on your adjusted gross income. This credit is available to individuals 18 years or older who are not full-time students nor claimed as dependents on another person’s tax return.

5. Contribute to a Health Savings Account

A Health Savings Account (HSA) is an effective tool for individuals with high-deductible health plans to allocate funds for medical expenses. These accounts offer three significant tax benefits.

• Firstly, contributions are pre-tax when made through an employer and tax-deductible when the account is set up independently.
• Secondly, the account balance can grow without incurring taxes if invested.
• Lastly, withdrawals are tax-free when spent on qualified medical costs, such as deductibles, copays, or coinsurance. An advantage of HSAs is that any remaining funds carry over annually, promoting long-term savings.

For 2024, the IRS has established HSA contribution limits at $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up allowance for those 55 or older. If your employer offers an HSA, verifying whether they contribute or match employee contributions is beneficial. Remember, employer contributions are included in the annual cap.

Employers may also provide Flexible Spending Accounts (FSAs), which allow pre-tax contributions to reduce taxable income. Unlike HSAs, FSA funds cannot be invested, and unused funds usually do not carry over to the next year. FSAs depend on employment status, and you could lose access to the account upon changing jobs. The FSA contribution limit for 2024 is $3,200.

Both HSAs and FSAs provide effective ways to manage healthcare expenses, yet HSAs offer more flexibility and the potential for financial growth over time.

6. Deduct the Student Loan Interest You’ve Paid

Paying off student loans is financially challenging, but the interest you pay on these loans might provide some tax benefits. For the 2024 tax year, individuals with a modified adjusted gross income (MAGI) under $75,000, or $150,000 for joint filers, can deduct up to $2,500 of student loan interest from their taxable income. This deduction applies to both federal and private student loans, including those managed by servicers such as SoFi or Earnest.

If your MAGI is above these limits, the deduction decreases gradually. For single filers, it phases out between a MAGI of $75,000 and $90,000; for joint filers, it is between $150,000 and $180,000. You’re ineligible for this deduction once your income exceeds $90,000 (single) or $180,000 (joint).

Federal student loan payments and interest accrual were suspended from March 2020 until October 2023. If you paid interest between October and December 2023, you can deduct that interest on your 2023 tax return, which you’ll file in 2024. Likewise, any interest paid in 2024 is deductible on your 2024 tax return, which you’ll file in 2025, as long as you meet the income and filing status criteria.

To claim this deduction, itemizing isn’t necessary; it’s an “above-the-line” adjustment to income. This reduces your taxable income directly. Make sure to get Form 1098-E from your loan servicer, which documents the interest paid during the year, to claim this benefit properly.

7. Donate Assets to Charity

Making charitable donations can help reduce your taxable income while allowing you to support important causes. To utilize these deductions, you need to itemize your deductions, meaning the total—including mortgage interest, charitable gifts, and certain medical expenses—must be higher than the standard deduction. For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. Additionally, those aged 65 or older or blind qualify for an additional standard deduction.

Due to the higher standard deductions established by the Tax Cuts and Jobs Act, fewer taxpayers benefit from itemizing. If itemizing deductions is advantageous, consider donating assets like bonds, stocks, or real estate that have been appreciated. Donating these assets directly to a qualified charity allows you to avoid capital gains tax and deduct the fair market value at the time of donation.

You can also donate tangible items such as furniture, clothing, and vehicles to increase your itemized deductions. It’s important that these non-cash donations are in good condition and that you obtain a receipt from the charity. For donations valued over $500, you must fill out Form 8283 and attach it to your tax return.

To claim these deductions, ensure your contributions go to qualified organizations and keep accurate documentation. Consulting a tax professional can help you understand these rules and maximize your tax advantages.

8. Open a 529 College Savings Plan

Opening a 529 plan is an effective method for saving for education, applicable for both yourself and your loved ones. These state-sponsored investment accounts grow tax-deferred, and withdrawals are tax-free if used for qualified educational expenses such as tuition, room and board, books, and supplies. While contributions to a 529 plan do not yield a federal income tax deduction, several states offer tax incentives to residents who invest in a state plan. For example, New York and Ohio allow deductions up to a specified contribution limit.

It’s important to carefully plan your contributions based on expected educational costs and the tax consequences of non-qualified withdrawals, which may incur income tax on the earnings and a 10% penalty. Notably, the SECURE Act 2.0, effective in December 2022, has added flexibility to 529 plans. From 2024, it is possible to transfer unused 529 funds into a Roth IRA for the same beneficiary under certain conditions:

• The 529 account must have been established for at least 15 years.
• The funds, including contributions and earnings, must have been in the account for at least five years.
• The annual Roth IRA contribution limits the transfer and cannot exceed a lifetime maximum of $35,000 per beneficiary.

These changes allow for converting unused education funds into retirement savings, thus extending the benefits of 529 plans. Before contributing, consider the specific tax advantages your state offers and perhaps consult a financial advisor to ensure your investment strategy aligns with your educational and financial objectives.

Conclusion

Taking proactive steps now can significantly impact your 2024 tax liability. By implementing strategies such as maximizing retirement contributions, adjusting your W-4, and exploring available tax credits, you can reduce your owe and keep more of your hard-earned income.

For more complex strategies like tax-loss harvesting or charitable donations of assets, consulting a tax professional can ensure you comply with tax laws while maximizing your benefits. The time to act is now—review your financial situation and make adjustments before the year ends to set yourself up for a smoother tax season in 2025.

Frequently Asked Questions