As the tax season progresses, many individuals, especially W-2 employees, may find themselves seeking ways to minimize their tax liabilities or improve their refund amounts. Unlike independent contractors or self-employed individuals, W-2 workers have limited avenues for tax strategies post-December 31. Financial experts, such as Boston-based certified financial planner Catherine Valega, emphasize that after the new year starts, tax-saving opportunities become scarce. While it might seem that individuals can still make strategic financial moves, the reality is that significant tax adjustments related to the previous tax year are nearly exhausted.
Once the calendar flips to January, taxpayers can no longer make certain impactful moves. For example, increasing contributions to a 401(k) plan or utilizing tax-loss harvesting isn’t an option anymore. Thus, individuals looking to enhance their tax situation will need to focus on the strategies that remain available before the tax return deadline of April 15. Financial advisors recommend that taxpayers familiarize themselves with these remaining opportunities to effectively leverage them to their advantage.
Firstly, health savings accounts (HSAs) present a viable pathway for tax reduction. Previously established for individuals with high-deductible health plans, HSAs allow contributors to put aside up to $4,150 for individual coverage and $8,300 for family plans in 2024. With the April 15 deadline in place, contributors can still deposit funds and receive a tax deduction, making HSAs an attractive option for those eligible. Financial planner Thomas Scanlon champions the simplicity of HSAs, urging individuals to take full advantage of this opportunity.
Secondly, contributions to individual retirement accounts (IRAs) are another avenue for last-minute tax strategies. For the 2024 tax year, individuals can contribute up to $7,000 to IRAs—offering an extra $1,000 for those aged 50 or older. These pre-tax contributions can effectively lower adjusted gross income, providing potential deductions. However, one must be aware that while tax obligations can be deferred, taxes will still be required upon withdrawal.
Another often-overlooked option for married couples is the spousal IRA. This accounts for scenarios where one partner may not be earning an income. The working spouse can contribute to both their own and their partner’s IRA, provided their income meets the requirements. Coupling contributions in this manner allows couples to maximize their retirement savings while claiming deductions on both fronts.
While W-2 employees may face limitations after the year-end, strategic planning and timely actions can still effectuate tax benefits before the filing deadline. By focusing on opportunities such as health savings accounts, individual IRA contributions, and spousal IRAs, individuals can position themselves for a more favorable tax outcome. Understanding these options not only aids in current tax planning but also fosters a proactive approach to future financial security. It is essential not to overlook these strategies as the deadline approaches, encouraging taxpayers to take full advantage of what is available to them.