Tax-Saving Tips for Individuals and Families
Taxes are one of the few constants in life. And very rarely is tax season an eagerly-anticipated time of year for individuals and families. As tax season approaches, it’s recommended to think ahead—or work with a tax professional—to minimize tax burden and maximize potential savings.
There are a lot of ways to make tax season easier on your household. By understanding the various deductions, credits, and tax planning techniques available, you can make informed decisions that benefit your bottom line. Whether you’re preparing your taxes yourself or working with a pro, like the experts at Squire, these tax-saving tips will help you optimize your tax situation.
Maximize Your Standard Deduction or Itemize
One of the first decisions to make when filing taxes is whether to take the standard deduction or itemize. For the 2024 tax year, the standard deduction is $14,400 for single filers and $28,800 for married couples filing jointly.
Many individuals find the standard deduction to be a quick and easy way to reduce taxable income, but families with significant expenses may benefit from itemizing deductions. Common deductions include mortgage interest, charitable contributions, some medical expenses and state and local taxes up to $10,000.
It’s worth taking the time to calculate whether itemizing will save you more money than the standard deduction. For families with mortgage payments, medical expenses, or high state taxes, itemizing could provide significant savings.
Take Advantage of Family Tax Credits
Several credits are available to families that can reduce your tax bill dollar-for-dollar. These credits often provide more savings than deductions, so be sure to explore the options.
For example, in the tax year 2024, the Child Tax Credit provides up to $2,000 per qualifying child under the age of 17. A portion of this credit may be refundable, meaning it can increase your refund even if you don’t owe any taxes.
For low to moderate-income families, the Earned Income Tax Credit can result in substantial savings, potentially offering a credit of up to $7,830 depending on your income and number of children.
If you pay for child care or dependent care, you may qualify for a tax credit of up to 35% of up to $3,000 in qualifying expenses for one child or $6,000 for two or more children.
The IRS has a webpage on family and dependent tax credits here.
Utah-specific Tax Credits
If you’re a resident of the Beehive State, there are several state-specific tax credits that could help you and your family save money on your taxes.
If you’ve installed renewable energy systems on your property, you may be eligible for Utah’s Renewable Energy Systems Tax Credit. This credit allows homeowners to claim 25% of the installation cost of a residential renewable energy system, up to a maximum credit of $2,000 for wind, geothermal, and other renewable technologies installed on residential dwelling units. Solar panels and batteries are not included in 2024. Federal credits are also available for renewable energy, including solar and batteries, and the combination of state and federal incentives can significantly reduce your costs. Going green can save you a lot of green.
For Utah residents saving for education through the state’s My529 plan, contributions are eligible for a state tax credit. For 2024, you can claim a credit of 5% of your contributions, up to certain limits based on your filing status. For example, a married couple filing jointly can receive a credit on up to $4,820 in contributions ($219 maximum credit). This tax credit helps reduce your taxable income while also saving for future education expenses.
For families who have adopted a special needs child, Utah offers a refundable tax credit of $1,000 per adopted child. This credit applies in addition to the federal adoption tax credit, making adoption more affordable for families.
For more details on these and other tax credits, you can explore the official Utah State Tax Commission page on tax credits.
Contribute to Retirement Accounts
Contributions to retirement accounts not only help secure your future, but they also provide immediate tax benefits. Depending on the type of account, contributions can lower your taxable income or grow tax-free.
Contributions to Traditional IRA or 401(k) accounts are typically tax-deductible, meaning you can lower your taxable income for the year you contribute. For 2024, you can contribute up to $7,000 to an IRA (with an additional $1,000 for individuals 50 or over) or $23,000 to a 401(k) (with an additional $7,500 for individuals 50 and over).
While contributions to a Roth IRA are not deductible, they grow tax-free, and you won’t owe taxes on qualified withdrawals in retirement.
For families and individuals looking to reduce their current tax bill while saving for the future, maximizing contributions to retirement accounts is a smart strategy.
Utilize Health Savings Accounts (HSAs)
For those with high-deductible health plans (HDHPs), contributing to a Health Savings Account (HSA) offers a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free. For 2024, individuals can contribute up to $4,150 to an HSA, while families can contribute up to $8,300.
By using an HSA to pay for medical expenses, you can reduce your taxable income and save for future healthcare needs in a tax-efficient manner.
Charitable Giving for Tax Savings
If you regularly give to charity, consider donating in ways that maximize your tax benefits. You may consider donated appreciated assets that can help you avoid capital gains taxes. You would still be able to deduct the full value of the donation.
It may also be wise to bunch the donations you would have made across multiple years into one big single donation. That way you could exceed the standard deduction and achieve a higher itemized deduction.
Charitable giving not only supports causes you care about but also offers a way to reduce your tax liability.
Implementing these tax-saving strategies can make a significant difference in your overall tax burden. From maximizing deductions and credits to smart planning techniques like retirement contributions and tax-loss harvesting, there are many ways to optimize your tax situation.
You should know that the tax code is changing constantly. It might be best to enlist the services of a tax professional, rather than try to go it alone. For personalized assistance and detailed guidance on your individual tax planning, Squire’s team of experts is here to help.