As the year wraps up, it’s the perfect time to focus on strategies to help reduce your tax liability. With a few well-timed actions, middle- and low-income earners can make the most of tax-saving opportunities this year. Here are some tailored approaches to consider as you wrap up your financial plans.

Step 1: Choose Between the Standard Deduction or Itemizing

For 2024, the standard deduction amounts are $29,200 for joint filers, $14,600 for single filers, and $21,900 for heads of household. These amounts are often more favorable than itemizing for many taxpayers. However, if you have higher eligible deductions, itemizing may be worthwhile. Eligible deductions include:

Medical expenses above 7.5% of your Adjusted Gross Income (AGI)
State and local taxes up to $10,000
Charitable donations
Mortgage interest on certain loan amounts

Step 2: Maximize Deductions by Consolidating Expenses

If you are close to the threshold where itemizing may be beneficial, consider consolidating expenses in one tax year to exceed the standard deduction. For example, you might choose to make additional charitable contributions or pay medical bills this year rather than next to raise your deductible amount.

Step 3: Time Income and Deductions to Your Advantage

To optimize your tax situation, think about delaying income until 2025 or accelerating deductions into 2024 to lower your Adjusted Gross Income. A lower AGI could mean eligibility for additional benefits, such as:

Deductible IRA contributions
Child Tax Credit
Education-related tax credits
Student loan interest deductions

Alternatively, if you expect to be in a higher tax bracket next year, you might consider accelerating income into 2024.

Step 4: Contribute to Retirement Accounts

Maximizing contributions to retirement accounts like a 401(k) or IRA not only reduces taxable income for 2024 but also builds future financial security. Consider contributing as much as you can to lower your taxable income and set yourself up for retirement.

Step 5: Offset Gains with Losses

If you hold investments that have lost value, selling them by year-end can help offset gains from other investments and potentially reduce capital gains taxes. This strategy, known as tax-loss harvesting, can be a useful way to manage taxes if you have a mixed investment portfolio.

Additional Year-End Tax-Saving Tips

Avoid Penalties on Required Minimum Distributions: If you’re 73 or older, remember to take any required minimum distributions (RMDs) from retirement accounts to avoid penalties.
Use Flexible Spending Account (FSA) Funds: Many FSAs have a “use it or lose it” policy, so spend remaining funds on eligible expenses before December 31.
Consider Deferring Bonuses: If your employer allows it, consider deferring any year-end bonus to 2025 to keep your 2024 taxable income lower.
Qualified Charitable Distributions (QCDs): If you’re 70½ or older, think about making charitable donations directly from your IRA through a QCD, which can help reduce your AGI if you don’t itemize deductions.
Gift Tax Exclusion: The 2024 exclusion allows tax-free gifts of up to $18,000 per recipient, a tax planning strategy that may benefit your family.

Get a Personalized Tax Plan

These strategies can significantly reduce the tax burden for middle- and low-income earners. Consider working with JCox to create a plan tailored to your needs and maximize year-end tax savings.

Taking action now can translate to substantial savings when tax season arrives.