Unlock Tax Savings in 2024: 5 Smart Strategies to Reduce Your Taxable Income

Discover how to ease your tax burden without trimming your earnings. Your tax payment to the IRS hinges on your tax bracket, which is influenced by your taxable income and filing status. However, you can effectively lower your taxable income through several smart tactics—from enhancing retirement contributions to capitalizing on student loan interest deductions.

Here's a dive into five straightforward strategies for diminishing your tax bill by lowering your taxable income.

A Closer Look at Tax-Saving Opportunities

1. Boost Retirement Savings

An effective and advantageous method to cut down your taxable income is by contributing to a pre-tax retirement account like a 401(k) or a traditional IRA. These contributions reduce your immediate taxable income and allow your investments to grow tax-deferred until retirement. In 2024, the contribution limit is $23,000 for a 401(k) and $7,000 for IRAs, with an additional catch-up contribution for those aged 50 and above.

Corbin Blackwell, CFP at Betterment, emphasizes the potential for traditional IRA contributions to lower tax liabilities, though eligibility for deductions varies based on income and whether you have an employer-sponsored retirement plan.

2. Engage in Employee Stock Purchase Plans (ESPP)

For those employed by publicly traded companies, ESPPs offer a route to purchase company shares at a discount, often up to 15%. With annual contribution caps set at $25,000, the real tax savings emerge based on the holding period of these shares, promoting long-term capital gains tax rates over immediate ordinary income tax rates for longer-held investments.

3. Maximize Contributions to Health Savings Accounts (HSA)

HSAs present a triple tax benefit for individuals with high-deductible health plans, allowing for tax-free contributions, growth, and withdrawals for qualified medical expenses. The contribution limits for 2024 stand at $4,150 for individuals and $8,300 for families, with an additional $1,000 for those 55 and older. HSAs are particularly valuable as they roll over annually and can complement employer contributions within IRS limits.

4. Claim Student Loan Interest Deductions

Paying off private student loans can offer a silver lining by allowing you to deduct up to $2,500 of interest paid, contingent on your income falling below the specified thresholds for your filing status. This deduction can ease the financial load of education loans, particularly as federal student loan interest payments resumed in late 2023.

5. Capitalize on Investment Losses

Market downturns may not all be bad news. By selling underperforming stocks, you can engage in tax-loss harvesting, offsetting capital gains taxes or even reducing your taxable income by up to $3,000. This strategy not only lowers your tax bill but also allows for a more tax-efficient investment portfolio.

Final Thoughts: Navigating Your Tax Strategy

These strategies underscore the myriad ways to navigate the tax landscape in 2024, potentially saving you significant amounts while ensuring compliance and optimizing financial health. Whether it's enhancing your retirement savings, participating in stock purchase plans, or smartly managing investments, the key lies in making informed decisions that align with your overall financial plan. Consider Stanton Financial Management as your ally in this journey, offering expert guidance to unlock these tax savings and more.

Book an appointment now