As tax season approaches, many individuals start seeking effective ways to minimize their tax liability and maximize their refunds. However, for W-2 employees—individuals who receive regular wages from an employer—options are somewhat restricted as the calendar year draws to a close. After December 31, any tax-planning opportunities for the previous year become severely limited. Financial experts highlight the challenges faced by W-2 employees in making last-minute adjustments to their tax strategy, stressing the importance of understanding what remains available at this juncture.
Though the avenues for reducing tax obligations appear narrow, there are still a few strategic moves that taxpayers can execute before the filing deadline of April 15. One of the most impactful options is contributing to a Health Savings Account (HSA). For 2024, individuals can deposit up to $4,150 for individual plans or $8,300 for family plans, provided they are enrolled in a qualifying high-deductible health insurance plan. This contribution offers a tax benefit, allowing taxpayers to lower their taxable income, making it a straightforward approach that is often underutilized. As financial planners assert, if you’re eligible for an HSA, it’s advisable to take advantage of it.
In addition to HSAs, individuals can make last-minute contributions to Individual Retirement Accounts (IRAs) before the deadline. For 2024, the contribution limit stands at $7,000, with an additional catch-up contribution of $1,000 allowed for those aged 50 and older. This effectively offers a route to reduce your adjusted gross income, which, in turn, can lead to a lower tax bill. It’s crucial to note that deductions for traditional IRA contributions are contingent upon income levels and participation in employer-sponsored retirement plans, thus requiring some strategic planning.
Moreover, couples who choose to file jointly have another valuable option at their disposal: the spousal IRA. This option allows for a separate retirement account for a nonworking spouse, provided that the working spouse earns sufficient income to cover both contributions. This strategy not only opens up potential deductions for both partners but also enhances the couple’s overall retirement savings.
While the window of opportunity may be narrow, W-2 employees still have viable strategies to consider as they prepare their 2024 tax returns. By investing in an HSA or making contributions to both traditional and spousal IRAs, taxpayers can effectively reduce their taxable income and optimize their financial situation. As the April 15 deadline approaches, it is wise to act promptly to ensure these opportunities are fully leveraged. With careful planning and prompt action, taxpayers can navigate tax season with greater confidence and financial benefit.