You have until April 15 to file your 2024 taxes. As the name implies, nearly all of what matters when it comes to your return happened last year. The various paperwork you’ll have to go through over the next couple of months will likely concern property you sold, money you made and loans you repaid in 2024.
But the income you’ll owe tax on isn’t quite set in stone. If you want to trim your bill between now and Tax Day, there are still a couple of moves to be made.
“There are certain times after the fact that you can sill reduce your taxable income for the prior year,” says Ryan Losi, a certified public accountant and executive vice president with Piascik. “If you make contributions to your IRA or HSA, you have until April 15 to have it treated as a prior year contribution.”
Indeed, a single taxpayer who maxed out an individual retirement account and health saving account could trim their taxable income by thousands of dollars. Here’s how it works.
How contributing to retirement can lower your taxes
Let’s start with the IRA. An individual retirement account is a retirement savings vehicle you open through a brokerage. The so-called “traditional” versions of these accounts are funded with pre-tax dollars, which means you can deduct the amount you contribute from your taxable income for the year you made the deduction.
But IRA contributions also come with a little grace period. You can designate any money you put in between now and April 15 as a prior-year contribution.
For 2024, you can put up to $7,000 into an IRA, or up to $8,000 if you’re age 50 or older. As long as you didn’t already hit the limit last year, you can still shield more of your money from 2024 income tax. Some taxpayers are subject to limited deductions if they or their spouse make a certain amount of money and are covered by a retirement account at work.
Cash in an these accounts isn’t shielded from taxes forever. Money you withdraw from an IRA is treated as taxable income in retirement. Plus you’ll owe an additional tax penalty if you withdraw the money before age 59½.
Still, financial pros generally view getting a tax break this year while stashing money away for retirement as a win-win — if you can swing it.
“Obviously it’s a great privilege to have several thousand dollars laying around, but it’s one of the only things you can take action on within this tax season that will help you on this year’s taxes,” says Courtney Alev, head of tax and consumer financial advocate at Credit Karma.
Saving on taxes and on future health-care expenses
You can also make retroactive contributions to a health savings account.
These accounts are renowned for their triple tax advantage. Like an IRA, you can deduct contributions from your taxable income. If you invest within the account, your portfolio grows tax-free. And you won’t owe Uncle Sam anything when you withdraw the money, provided you use it for qualified medical expenses.
These accounts, which are only available to workers enrolled in high-deductible health plans, are a favorite among financial planners, who view them as a powerful retirement savings tool.
As with an IRA, you have until April 15 to make a 2024 contribution. For the 2024 tax year, individuals can contribute up to $4,150 if they have self-coverage and up to $8,300 for family coverage. If you’re age 55 or older, you can kick in an extra $1,000.
So, assuming you have ample cash lying around, have family coverage, are 55 or older and didn’t contribute a nickel to your IRA or HSA in 2024, you could theoretically still reduce your 2024 taxable income by $17,300 — all while putting money toward long-term goals.
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