The end of the year is quickly approaching, but there’s still time to take control of your taxes and keep more of your hard-earned money in your pocket. Many people wait until tax season to think about their taxes, but with a few smart moves now, you could reduce your 2024 tax bill and potentially increase your refund next year. Here are some effective strategies for you to lower your tax liability before December 31.
1. Adjust Your W-4 to Maximize Your Paychecks
If you’ve had the same W-4 form filled out since you first got hired, you could be missing out on extra income each paycheck. By updating your W-4 with your employer, you can adjust how much tax is withheld from each paycheck. More accurate withholding can ensure you’re not giving an interest-free loan to the government all year.
Try This: Use a W-4 optimizer tool like Grid PayBoost to get personalized recommendations on the best way to adjust your withholding. It could mean more take-home pay now, which can help cover expenses or allow you to save more. However, be careful not to under-withhold and owe a large tax bill come April.
2. Contribute to a Traditional IRA or 401(k)
Putting money into retirement accounts is a great way to reduce your taxable income. Contributions to a traditional IRA or 401(k) are often tax-deductible, which means the more you contribute (up to the limit), the less taxable income you have.
- Traditional IRA: You can contribute up to $6,500 (or $7,500 if you’re over 50) to an IRA in 2024.
- 401(k): If you have a 401(k) through work, you can contribute up to $22,500 (or $30,000 if you’re over 50) in 2024.
Why It Helps: Not only does this reduce your current tax burden, but it also helps you build long-term savings.
3. Claim the Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) is a tax benefit for working individuals and families with low to moderate income. To claim it, make sure your income falls within the IRS guidelines, as the credit amount varies based on income and family size.
Qualifying Tips:
- Check Eligibility: Review the IRS guidelines for 2024 income limits and family size qualifications.
- Double-Check Your Earnings: If possible, ensure any end-of-year bonuses or other income doesn’t push you above the qualifying income limit, as this could impact your EITC eligibility.
The Bottom Line: If eligible, the EITC can boost your refund by hundreds or even thousands of dollars. Plus, it’s refundable, meaning you can get it even if you don’t owe any taxes.
4. Donate to Charities
Did you know that charitable donations can lower your taxable income? If you itemize your deductions, you may be able to deduct donations you make to qualifying charities. Contributions don’t have to be monetary; donations of goods to local thrift stores or non-profits are also eligible.
Quick Tip: Keep receipts for all donations. And if you’re donating items like clothes, list them out and note the fair market value—this documentation is important come tax time.
Bonus: Helping out causes you believe in can provide a positive impact in the community while also benefiting your finances, and can even be a thoughtful gift during the holiday season!
5. Offset Gains with Losses
If you’ve invested in stocks or other assets this year, look into tax-loss harvesting. This strategy involves selling investments that have lost value to offset gains from those that have appreciated. This can be especially useful if you’ve earned some capital gains from other investments, as losses can help reduce the amount you owe.
How to Get Started:
- Review Your Portfolio: Identify underperforming assets that you could sell to lock in losses.
- Consult a Professional: If you’re unfamiliar with tax-loss harvesting, it may be worth seeking advice, especially if you have a diversified investment portfolio.
Final Thoughts: Start Preparing Now for a Stress-Free Tax Season
By making these moves before December 31, you’re setting yourself up for a smaller tax bill or a bigger refund in 2024. Don’t wait until the last minute; small actions now can make a big difference when it comes to your taxes. Consider consulting a tax professional for personalized advice, especially if you’re not sure which strategies will work best for you.
Take control of your finances today to make the most of your money in the new year. Let’s make 2024 the year you keep more of what you earn!
