No matter how much you earn, you probably want to keep as much of your income as possible. The good news is that there are 3 smart ways to reduce your taxes legally, allowing you to save more money while staying compliant with IRS rules. Here’s how you can lower your tax bill this year.
1. Maximize Contributions to Your Retirement Plan
Saving for the future doesn’t just secure your retirement—it can also help you save on taxes right now. If you contribute to a traditional IRA or 401(k), you can lower your taxable income and reduce what you owe to the IRS.
For this year, the maximum contribution limit for an IRA is $7,000, or $8,000 if you’re 50 or older. If you have a 401(k), you can contribute up to $23,500, and if you’re 50 or older, you can put in as much as $31,000 and if you are Thinking About Borrowing From Your 401(k) Understand the Risks.
2. Take Advantage of an HSA
A Health Savings Account (HSA) is another smart way to save money while cutting your tax bill. Contributions to an HSA are tax-deductible, and the money can be used tax-free for medical expenses.
To qualify, your health plan must have a minimum deductible of $1,650 for individuals or $3,300 for families. There are also limits on out-of-pocket expenses—$8,300 for individuals and $16,600 for families.
3. Offset Gains by Selling Investment Losses
Investing is a great way to grow your wealth, but when you sell stocks for a profit, you may owe capital gains taxes. One way to lower your tax bill is by selling investments that have lost value to offset those gains.
This strategy, known as tax-loss harvesting, helps reduce your taxable income. If your losses exceed your gains, you can use up to $3,000 per year to offset other income, like wages or business earnings.
Check out Five benefits you can apply for on the Social Security website for more benefits.
How These 3 Smart Ways to Reduce Your Taxes Legally Can Benefit You
| Strategy | Tax Benefit |
| Max out retirement contributions | Lowers taxable income |
| Contribute to an HSA | Tax-deductible savings for medical costs |
| Sell investment losses | Offsets capital gains and reduces taxable income |
Lowering your taxes doesn’t have to be complicated. By making smart financial moves, like increasing your retirement contributions, funding an HSA, and managing your investments wisely, you can keep more of your money while staying on the right side of tax laws.
FAQs on 3 Smart Ways to Reduce Your Taxes Legally Can Benefit You
1. How much can I contribute to my 401(k) in 2024?
You can contribute up to $23,500, or $31,000 if you’re 50 or older. Workers aged 60 to 63 can contribute up to $34,750.
2. Can I use an HSA if I don’t have a high-deductible health plan?
No, HSAs are only available to those with a qualifying high-deductible health plan.
3. What happens if my investment losses are greater than my gains?
You can offset up to $3,000 of ordinary income per year with excess losses, and any remaining losses can be carried forward to future years.