As the tax season approaches its climax, many individuals are eager to discover strategies that could either lower their tax liabilities for the year 2024 or enhance the size of their tax refunds. However, options become notably slim for W-2 employees who earn fixed wages. According to expert financial planners, once the calendar year closes, taxpayers are left with minimal avenues for retroactively claiming benefits—especially after December 31. This reality sets the stage for a sense of urgency as April 15 approaches.
The opportunity to claim certain tax deductions or credits is significantly curtailed post-year-end. For instance, taxpayers can no longer increase their 401(k) contributions or execute strategies like tax-loss harvesting to reduce taxable income from the previous year. Experts like Catherine Valega, a certified financial planner from Boston, emphasize that many viable strategies disappear with the changing of the year. Thus, it becomes imperative for taxpayers to understand what options remain open to them prior to the impending deadline.
One advantageous option still available is contributing to a Health Savings Account (HSA). For individuals with high-deductible health plans, the contribution limits for 2024 reach $4,150 for individual coverage and $8,300 for family coverage. Those eligible have until April 15 to deposit funds into their HSA, which offers a unique tax deduction opportunity. Thomas Scanlon, a certified financial planner based in Manchester, Connecticut, asserts that utilizing an HSA is a straightforward endeavor for eligible taxpayers: “If you are eligible, fund it and take the deduction.” This choice not only lowers taxable income but also sets taxpayers up for better financial healthcare readiness.
Another avenue to explore before taxes are submitted is the contribution to an Individual Retirement Account (IRA). Taxpayers may deposit up to $7,000 into their IRA, with an additional $1,000 catch-up contribution for those aged 50 and above. Contributions to a traditional IRA are often deductible, depending on income and participation in a workplace retirement plan. It’s important to note that while a traditional IRA provides upfront tax benefits, it typically results in a tax liability at the time of withdrawal, as outlined by Andrew Herzog, an associate wealth manager at The Watchman Group.
For married couples filing jointly, the Spousal IRA option can be particularly advantageous. This allows working spouses to establish separate IRAs for non-working partners, thereby enabling both partners to maximize their retirement contributions under certain income conditions. The ability to claim deductions for both accounts can ultimately translate into substantial tax savings. This often-overlooked strategy can significantly enhance retirement readiness while simultaneously reducing tax burdens.
As the April 15 deadline looms, taxpayers should evaluate these strategic opportunities to optimize their tax returns for 2024. Though many options may have elapsed with the passing of the calendar year, understanding and utilizing available tax strategies, such as HSAs, IRAs, and Spousal IRAs, can still yield beneficial financial outcomes. Navigating the intricacies of tax law is essential, and taking proactive steps may pave the way for a more favorable financial future.