As the 2024 tax season gains momentum, many individuals who receive W-2 forms may be hunting for strategies to minimize their tax liabilities or enhance their potential refunds. Unfortunately, the avenues available to these employees are quite limited, particularly after the close of the previous year. Experts like Catherine Valega, a Boston-based certified financial planner, emphasize that once December 31 has passed, the opportunities to make impactful adjustments to reduce taxes become scarce.
The role of tax planning becomes crucial for W-2 employees, who typically rely on their employers for wage income, as their flexibility in maneuvering tax strategies is significantly diminished compared to self-employed individuals or small business owners. Thus, with the deadline for filing looming on April 15, focusing on last-minute strategies becomes essential.
With a calendar adjustment no longer possible, W-2 employees can still capitalize on a few remaining options to affect their 2024 taxes favorably. One of the primary opportunities is funding a Health Savings Account (HSA). If you have not yet maxed out your HSA contributions, you can still do so until the tax deadline, making it a vital strategy for those eligible. In 2024, individuals can contribute up to $4,150, while families can reach a limit of $8,300. It’s essential to possess a qualifying high-deductible health insurance plan to benefit from this deduction.
Experts like Thomas Scanlon from Raymond James advocate for this method, underscoring its simplicity and tax advantages. By contributing to an HSA, you not only gain immediate tax deductions but also encourage long-term savings for health expenses.
Another noteworthy strategy involves individual retirement accounts (IRAs). The April 15 deadline applies equally to IRA contributions for 2024. Individuals can contribute a maximum of $7,000 to a traditional IRA, and those aged 50 and older can add an additional $1,000 catch-up contribution. These contributions can reduce your taxable income, but as noted by Andrew Herzog at The Watchman Group, it’s worth remembering that traditional IRAs postpone taxation rather than eliminate it entirely. Eventually, you will be subject to taxes upon withdrawal.
Moreover, for married couples, the spousal IRA option presents an excellent way to capitalize on tax benefits. This lesser-known strategy allows working spouses to fund separate IRAs for non-working spouses, maximizing contributions on behalf of both partners. As long as the working spouse’s income supports the contributions, both individuals can enjoy the benefits of traditional or Roth IRAs.
As individuals strategize their tax filings, it’s paramount to be aware of the remaining opportunities. The importance of timely contributions to HSAs and IRAs cannot be overstated for W-2 employees who wish to optimize their tax situations. With professional guidance, addressing these options effectively can lead to significant tax savings and bolster retirement planning. The time to act is now—do not wait for the last minute to explore these beneficial avenues in the countdown to the April deadline.
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