Create tax strategies

1. Maximize Contributions to Retirement Accounts

• 401(k): Contribute the maximum allowable amount to your employer-sponsored 401(k). For 2024, the contribution limit is $22,500 (or $30,000 if you’re over age 50). Contributions to a traditional 401(k) are made pre-tax, reducing your taxable income for the year.
• IRA (Traditional): If you’re eligible, consider contributing up to $6,500 (or $7,500 if over 50) to a traditional IRA. Similar to a 401(k), contributions to a traditional IRA are tax-deductible, lowering your taxable income. Be aware that there are income limits for IRA deductibility, depending on whether you have access to an employer-sponsored retirement plan.
• Roth IRA (if eligible): While Roth IRA contributions are made with after-tax dollars, qualified distributions are tax-free. If you’re within the income limits for a Roth IRA (for 2024, the limit is $153,000 for single filers), consider contributing as a way to build tax-free retirement income in the future.

2. Health Savings Account (HSA)

• If you are enrolled in a high-deductible health plan (HDHP), contribute to a Health Savings Account (HSA). For 2024, you can contribute up to $3,850 for individuals or $7,750 for family coverage. HSA contributions are tax-deductible, and the funds grow tax-free. Moreover, withdrawals for qualified medical expenses are also tax-free, offering a powerful tax-saving strategy.

3. Tax-Deferred Investment Accounts

• Annuities: Consider investing in tax-deferred annuities. While these are not as flexible as other investment options, they do allow for deferral of taxes on the growth of your investment until you begin withdrawals, potentially reducing your taxable income in the present.
• 529 College Savings Plans: If you have children and are planning for their education, contributing to a 529 plan offers tax benefits. Contributions grow tax-free, and withdrawals used for qualifying educational expenses are also tax-free. While contributions are not federally deductible, many states offer state income tax deductions for contributions.

4. Itemize Deductions (if applicable)

• Mortgage Interest: If you own a home, ensure you deduct the interest on your mortgage. This can be a significant deduction, especially in the early years of the mortgage when interest payments are high.
• Charitable Contributions: If you make charitable donations, consider itemizing those on your tax return. Cash donations, as well as donations of appreciated assets (stocks, for example), can provide substantial tax savings.
• State and Local Taxes (SALT): Be aware that you can deduct up to $10,000 in state and local taxes, including property taxes, income taxes, or sales taxes.

5. Tax Credits

• Child Tax Credit: If you have children under 17, you may be eligible for a child tax credit of up to $2,000 per child. This credit directly reduces your tax liability.
• Education Tax Credits: If you are paying for qualified educational expenses, explore credits like the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC). These credits can reduce the amount of taxes you owe based on educational costs.
• Energy Efficiency Credits: Consider making home improvements that qualify for energy efficiency tax credits, such as installing solar panels or upgrading insulation. These credits can directly reduce your tax liability.

6. Capital Gains and Losses

• Offset Capital Gains with Losses: If you have realized capital gains, consider selling underperforming assets to offset those gains with capital losses. This strategy, known as tax-loss harvesting, can lower your overall taxable income and reduce the tax burden on your investments.
• Hold Investments Long-Term: If possible, hold investments for more than one year to qualify for long-term capital gains rates, which are typically lower than short-term rates. The long-term capital gains tax rate is generally 0%, 15%, or 20%, depending on your income level.