In Part 1 of our year-end tax guide, we explored foundational strategies to minimize your tax liability.
In Part 2, we take a deeper dive into additional methods to ensure you’re maximizing tax-advantaged opportunities and streamlining your financial planning as the year draws to a close.
Use Tax-Advantaged Accounts Wisely
Tax-advantaged accounts are powerful tools for reducing your taxable income while supporting long-term financial goals. Here are two accounts you don’t want to overlook:
- Health Savings Accounts (HSAs):
HSAs provide triple tax benefits—contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are untaxed. For 2024, the contribution limits are:- $4,150 if you are covered by a high-deductible health plan just for yourself
- $8,300 if you have coverage for your family.
- 529 College Savings Plans:
Contributions to a 529 plan often qualify for state tax deductions. Additionally, earnings grow tax-free, and withdrawals used for qualified education expenses are also untaxed. These plans are a great way to support your child’s future education while reaping tax benefits today.
Evaluate Income and Deductions
Strategically adjusting your income and expenses before year-end can help you optimize your tax situation.
If your itemized deductions — such as medical expenses, charitable contributions, and property taxes — are close to the standard deduction threshold, consider accelerating some of these expenses into this year. This can help you maximize your deductions.
Additionally, be sure to review your withholding to ensure you’ve paid enough taxes throughout the year. Adjustments now can help you avoid penalties when you file.
Remember that in 2024, the standard deduction is $14,600 for single filers and married persons filing separately, $21,900 for a head of household, and $29,200 for a married couple filing jointly and surviving spouses.
Double-Check Tax Credits
Unlike deductions, tax credits directly reduce the amount you owe, dollar for dollar. Be sure to review these valuable credits:
- Child Tax Credit:
Provides up to $2,000 per qualifying child. - Education Credits:
- American Opportunity Tax Credit (AOTC): Up to $2,500 per eligible student for tuition and educational materials.
- Lifetime Learning Credit (LLC): Up to $2,000 per tax return for continuing education expenses.
- Earned Income Tax Credit (EITC):
Designed for low-to-moderate-income workers, this credit can significantly reduce your tax liability or even result in a refund.
Make sure you meet the eligibility requirements for each credit to maximize their value.
Organize Your Financial Records
The end of the year is an ideal time to get organized for tax season.
Proper preparation now can save you from last-minute stress and help ensure you claim every deduction and credit you’re entitled to.
Start by gathering all the essential documents you’ll need: W-2s, 1099s, and other income statements; receipts for charitable donations, medical expenses, and business-related costs; and detailed records of your investment transactions, including gains, losses, and dividends.
By compiling these items ahead of time, you’ll be well-positioned for a hassle-free filing process.
Work with your tax advisor to identify potential savings opportunities and confirm that your records are complete. A year-end meeting can help you address any gaps before filing season.
Reducing your tax bill before year-end is about more than just savings — it’s about making strategic financial decisions that benefit you now and in the future. By leveraging tax-advantaged accounts, maximizing deductions and credits, and organizing your records, you can minimize your tax liability and enter the new year with confidence.
