As the tax season approaches, many W-2 employees find themselves scrambling to find ways to lower their tax liabilities or maximize their refunds for the year 2024. Unfortunately, options for reducing taxes are limited once the calendar year has closed. Experts suggest proactive planning is crucial throughout the year, as many financial moves must be made before December 31st. Nevertheless, there are still some strategies you can explore before the April 15 tax deadline.
One of the most effective methods to reduce your taxable income is by contributing to a Health Savings Account (HSA). As long as you have an eligible high-deductible health plan, you can contribute up to $4,150 for individual coverage or $8,300 for family plans. Tax experts emphasize that until April 15, you can still make contributions to your HSA for the previous tax year, which makes it a strategic option for those looking to cut down their taxable income. Financial planners frequently recommend this route, as it allows taxpayers to take advantage of a tax-free accumulation of savings for medical expenses.
A critical aspect to keep in mind is that the contributions provide an immediate tax benefit, which can significantly increase your refund. As financial advisor Thomas Scanlon noted, if you’re eligible, it’s essential to make the contribution and take the deduction before the deadline.
Another opportunity you have before the tax filing deadline is to contribute to an Individual Retirement Account (IRA). For 2024, you can contribute up to $7,000, plus an additional $1,000 for those aged 50 and above. This offers a dual advantage: not only are you saving for retirement, but contributing to a traditional IRA can lower your adjusted gross income (AGI) for the year, which may reduce your tax liability.
However, it’s essential to carefully assess your eligibility to claim a deduction, as this depends on your income levels and whether you have access to a workplace retirement plan. While contributing to an IRA is a sound financial strategy, it’s important to remember that taxes will eventually apply once you start withdrawing funds. Andrew Herzog, a wealth manager, emphasizes that a traditional IRA primarily postpones taxation rather than eliminating it.
For married couples filing jointly, a lesser-known but effective tax strategy is the spousal IRA. If one spouse is not working, a spousal IRA allows contributions for both individuals, assuming the working spouse has sufficient income. This makes it possible to maximize contributions and deductions for both accounts, effectively doubling your potential tax advantages.
This strategy is particularly beneficial for couples who are looking to optimize their savings while managing their tax obligations. By utilizing a spousal IRA, couples can make full use of the tax-deferred growth potential offered by traditional IRAs or the tax-free withdrawals of Roth IRAs, depending on their financial goals.
With the April 15 deadline approaching, it is vital for W-2 employees to explore the remaining options available to minimize their tax burdens. While many strategies must be initiated before the year-end, opportunities such as HSAs, IRAs, and spousal IRAs provide avenues for tax savings and long-term financial security. By being proactive and informed, taxpayers can maximize their returns and pave the way for a more financially stable future.