If you’re looking to minimize your tax liabilities, it will require careful planning, a good understanding of recent tax changes, and a number of strategies tailored to your specific financial circumstances.

With inflation adjustments, evolving tax credit frameworks, and shifting deductions, staying informed is more critical than ever. This guide outlines five actionable strategies to reduce your 2024 tax burden effectively.

Apply Tax Credits

Tax credits offer a direct reduction in your tax bill, making them more impactful than deductions. A particularly significant credit for 2024 is the Clean Vehicle Tax Credit, which allows up to $7,500 for qualifying electric vehicle purchases. According to the IRS, this credit now applies to a broader range of vehicles, benefiting more taxpayers.

For families, the Child Tax Credit remains vital, offering up to $2,000 per qualifying child, with income phaseouts beginning at $200,000 for single filers and $400,000 for joint filers.

Education-related credits, such as the Lifetime Learning Credit, provide up to $2,000 for qualified tuition and related expenses, supporting ongoing education. Another valuable credit is the Earned Income Tax Credit (EITC), which offers up to $7,430 for low-to-moderate-income working families.

If you are looking to apply these credits to your tax filing, be aware that they will require precise documentation. You will need to meet the eligibility criteria. However, they do provide unparalleled savings opportunities.

Consider Health and Education Tax Benefits

Health and education expenses can also offer valuable tax-saving opportunities. For 2024, Health Savings Accounts (HSAs) allow contributions up to $3,850 for individuals and $7,750 for families, with an additional $1,000 for those over 55. These contributions are deductible and grow tax-free if used for qualifying medical expenses.

Similarly, the American Opportunity Tax Credit (AOTC) offers up to $2,500 annually per student for higher education expenses, with 40% of the credit refundable. Combining these benefits with employer-sponsored Flexible Spending Accounts (FSAs) can reduce your taxable income significantly.

According to recent IRS data, taxpayers using both HSA and FSA benefits reported an average annual savings of $1,200. Proper documentation is essential to claim these benefits without errors.

Make the Most of Your Retirement Contributions

Contributions to retirement accounts like a 401(k) or traditional IRA are an excellent way to reduce taxable income. In 2024, contribution limits have increased, with individuals under 50 allowed to contribute up to $23,000 to their 401(k), including a $7,500 catch-up provision for those over 50.

Contributions to traditional IRAs, capped at $6,500 (or $7,500 for those 50 and older), are also tax-deductible, depending on income levels and participation in employer-sponsored plans.

Research indicates that maximizing retirement contributions can result in significant tax savings. For instance, Fidelity’s recent analysis reveals that employees contributing the annual maximum to their 401(k) can reduce their taxable income by up to 20% depending on their tax bracket.

For self-employed individuals, SEP IRAs or Solo 401(k)s allow higher contributions, providing even greater tax deferral opportunities.

Use Itemized Deductions Where Beneficial

Although the standard deduction has simplified filing for most taxpayers, itemizing can yield higher savings in specific cases. The 2024 standard deduction is $13,850 for single filers and $27,700 for married couples filing jointly.

However, taxpayers with high mortgage interest, state and local taxes, or substantial medical expenses exceeding 7.5% of adjusted gross income may benefit from itemizing.

Taxpayers in high-tax states like California and New York often benefit most from itemizing due to high property taxes and income tax rates. Charitable donations also remain a key deduction opportunity.

Donating appreciated assets, such as stocks or mutual funds, allows taxpayers to avoid capital gains taxes while deducting the asset’s fair market value.

Invest Strategically to Manage Capital Gains

Capital gains taxes can drastically affect your overall tax liability, particularly for high-income earners. The current long-term capital gains tax rates for 2024 remain at 0%, 15%, and 20%, depending on taxable income. Strategically harvesting losses to offset gains gives investors an avenue to reduce their taxable income.

This approach, known as tax-loss harvesting, is particularly effective in volatile markets.

Tax-loss harvesting can improve your portfolio performance. Additionally, holding assets for more than a year before selling qualifies for lower long-term capital gains rates, a key strategy for high-income investors.

Making use of tax-advantaged accounts such as Health Savings Accounts (HSAs) or 529 plans for future medical or educational expenses can further shield investment gains from taxes.

Stay Ahead of Tax Law Changes

Tax laws and provisions evolve annually, and 2024 is no exception. For instance, the phase-out thresholds for many credits and deductions, including the Child and Dependent Care Credit, have increased due to inflation adjustments. Staying informed about these changes ensures you can capitalize on new opportunities and avoid pitfalls.

It’s totally understandable that some taxpayers will be unaware of recent IRS changes affecting their filing status or deductions, even if they make an effort to keep up-to-date. A qualified CPA like David’s Family CPA can help you work through these sorts of complexities.

For example, knowing the Qualified Business Income Deduction (QBI) for small business owners can lower taxable income by a lot if you use it correctly. This deduction can be taken off up to 20% of your business’s income.

Additionally, those subject to the Alternative Minimum Tax (AMT) or with international income sources must pay special attention to compliance requirements and reporting changes. As tax laws grow more convoluted, proactive planning and professional advice are likely to become essential in your drive to reduce liabilities.

Retain More of Your Hard-Earned Income

Reducing your 2024 tax liabilities is likely to involve a combination of credits, deductions, and making informed investment and contribution decisions. With the right strategies, you are in a good position to smoothly negotiate the often complicated tax environment—retaining more of your hard-earned income while remaining fully compliant with IRS regulations.