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As tax season progresses, many individuals may be seeking effective strategies to minimize their 2024 tax liabilities or enhance their refunds. Yet, options can be somewhat restricted, particularly for those classified as W-2 employees who receive a consistent wage, according to experts in the field.
Catherine Valega, a certified financial planner and enrolled agent based in the Boston area, emphasizes that after December 31, the window for making many tax-saving moves for the previous year closes significantly. Therefore, she advises that there are “very few” actions taxpayers can take once the year ends.
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After the year’s conclusion, taxpayers miss the chance to claim deductions through actions such as increasing 401(k) contributions, charitable donations, or engaging in tax-loss harvesting.
Nevertheless, several opportunities remain before the April 15 tax filing deadline that taxpayers can utilize. Here are three strategies to consider.
1. Make Contributions to Your Health Savings Account
If you have yet to fully fund your health savings account (HSA) for 2024, you have until April 15 to contribute funds and benefit from a tax deduction. For the year 2024, individuals can contribute up to $4,150 for single coverage or $8,300 for family coverage, provided they are enrolled in a qualifying high-deductible health insurance plan.
Thomas Scanlon, a certified financial planner at Raymond James, highlights the simplicity of the HSA. “If you are eligible, fund it and take the deduction,” he advises succinctly.
2. Invest in a Pre-Tax IRA
The April 15 deadline also applies to contributions to individual retirement accounts (IRAs). Taxpayers can contribute up to $7,000, with an additional $1,000 available for individuals aged 50 and older.
Depending on one’s income and whether they are covered by a retirement plan at work, it is possible to claim a deduction for these contributions. This strategy can effectively decrease your adjusted gross income for 2024, though it’s important to remember that traditional IRAs will incur regular income taxes upon withdrawal at a later date, as noted by Andrew Herzog, an associate wealth manager at The Watchman Group in Plano, Texas.
“A traditional IRA simply delays taxation,” Herzog explains, emphasizing the need for strategic planning.
3. Utilize a Spousal IRA
For couples filing jointly, an often-overlooked option is the spousal IRA, which allows for a distinct Roth or traditional IRA for nonworking spouses. Married individuals can maximize contributions to pre-tax IRAs for both partners, provided the income from the working spouse meets the contribution limits. This opens the door to potential deductions for both accounts.
Regardless of whether you are contributing to a single pre-tax IRA or dual accounts for each spouse, it’s crucial to align these decisions with broader financial and tax-planning objectives, according to financial advisors.
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