As the year draws to a close, taking steps to maximize your tax savings can put you in a stronger financial position. With careful planning, you can make strategic moves to lower your taxable income, maximize deductions, and leverage tax credits. Here are five essential year-end tax-saving tips to consider, each with a breakdown of actionable steps and guidance. 

1. Tax-Loss Harvesting

Tax-loss harvesting is a strategy for offsetting capital gains with losses by selectively selling investments that have dropped in value. This approach can minimize your tax liability by reducing the amount of taxable capital gains, and in some cases, you may be able to carry over losses to offset future gains.

Why it works: The U.S. tax code allows you to use capital losses to offset capital gains. If your losses exceed your gains, you can also deduct up to $3,000 of losses against your ordinary income per year, with additional losses carried forward to future years.

Steps to Implement Tax-Loss Harvesting

1. Review your portfolio: Identify any investments that are underperforming or that no longer align with your financial goals.
   
2. Sell losing positions strategically: Select assets that have decreased in value to offset realized gains. Focus on long-term assets held for over a year for the most favorable rates.
   
3. Avoid the Wash Sale Rule: This rule prevents you from repurchasing a substantially identical investment within 30 days before or after the sale to maintain your loss deduction.

Additional Considerations

1. Long-term vs. short-term gains: Long-term capital gains have lower tax rates, so prioritize offsetting short-term gains if possible.‍
2. Future portfolio positioning: Plan to rebalance your portfolio post-sale to ensure it aligns with your investment objectives.

You can utilize tax loss harvesting with pretty much any brokerage account out there—here are a few top options:

• Fidelity Investments
• Robinhood
• Vanguard
• Merrill Edge
• Interactive Brokers

2. Optimize Your Deductions: Standard vs. Itemized

Choosing between the standard deduction and itemizing is essential to minimizing your taxable income. For the 2024 tax year, the standard deduction is: $14,600 for single filers, $29,200 for married couples filing jointly, and $21,900 for heads of household. Deciding which approach is right for you depends on your deductible expenses.

Standard Deduction vs. Itemizing

1. The standard deduction: This deduction simplifies tax filing and is generally beneficial for taxpayers with fewer deductible expenses.
   
2. Itemized deductions: If your expenses exceed the standard deduction, itemizing may allow you to reduce your taxable income further. Common itemizable expenses include mortgage interest, charitable donations, medical costs exceeding 7.5% of your adjusted gross income, and state and local taxes.

How to Decide

1. Assess annual expenses: Add up all potentially deductible expenses, such as mortgage interest, medical costs, and charitable donations.‍
2. Consider bunching deductions: If you’re close to the threshold for itemizing, consider “bunching” charitable donations or medical expenses in one year to exceed the standard deduction and itemize. 

Key Points

1. Pros of standard deduction: Simpler filing, no need to track individual expenses.
   
2. Pros of itemizing: Potentially greater tax savings if expenses are high.
   
3. Bunching: Useful for maximizing deductions every few years, especially when nearing itemizable thresholds.

‍3. Maximize Contributions to Tax-Deferred Accounts

Contributing to tax-deferred retirement accounts, like IRAs, 401(k)s, and HSAs, offers significant tax advantages. Contributions to traditional retirement accounts lower your taxable income, while Roth accounts offer tax-free growth for withdrawals in retirement. Health Savings Accounts (HSAs) also provide tax-deferred benefits and can be used for qualified medical expenses.

Contribution Limits and Deadlines

1. 401(k) contributions: For 2024, the contribution limit is $23,000 for employee contributions, with a combined limit of $69,000 when including employer contributions.‍
2. IRA contributions: The limit is $6,500 for 2024, with contributions allowed up until April 15, 2025, for the 2024 tax year.‍
3. HSA contributions: Contribution limits for 2024 are $4,150 for individuals and $8,300 for families. Like IRAs, HSAs also have an extended contribution deadline.

Benefits of Maximizing Contributions

1. Reduce current taxable income: Traditional contributions lower your taxable income, resulting in immediate tax savings.‍
2. Tax-free withdrawals in retirement: Roth contributions grow tax-free, allowing for tax-free withdrawals in retirement.‍
3. Medical expense savings with HSAs: Contributions to HSAs are tax-deductible, and withdrawals are tax-free if used for qualified medical expenses.

Tips for Maximizing Contributions

1. Max out employer match: Ensure you’re contributing enough to your 401(k) to receive the full employer match, as it’s essentially free money.‍
2. Automatic contributions: Set up automatic contributions to consistently fund retirement and health savings accounts.‍
3. Consider Roth conversions: If you anticipate higher tax rates in retirement, consider converting a portion of your traditional IRA to a Roth IRA.

4. Make Charitable Donations

Charitable contributions can kill two birds with one stone—saving money on taxes, and doing good. If you itemize, you can deduct the fair market value of cash donations or property contributions to qualifying organizations. Donations of appreciated assets, such as stocks, can also be beneficial.

Types of Charitable Contributions

1. Cash contributions: Deduct cash donations to qualified organizations, typically up to 60% of your adjusted gross income.‍
2. Property donation: Donated items like clothing, furniture, or vehicles are deductible at fair market value.‍
3. Appreciated assets: By donating appreciated assets (e.g., stocks), you can avoid paying capital gains taxes on the appreciation while still receiving a tax deduction.‍
4. Donor-advised funds (DAFs) offer a flexible, tax-efficient way to give to charity by allowing you to make a donation, receive an immediate tax deduction, and then recommend grants to charities over time—ideal for strategic, long-term giving.

Some of the most popular DAFs out there include names like: 

• Fidelity Charitable
• Schwab Charitable
• Vanguard Charitable
• National Philanthropic Trust
• DonorsTrust

Considerations for Charitable Giving

1. Qualified organizations: Make sure the charity is IRS-approved to qualify for a deduction.
   
2. Keep records: Save receipts and documentation for donations, especially for items valued over $500.
   
3. Timing for tax purposes: Donations must be made by December 31 to count for the current tax year.

5. Take Advantage of Deductions and Credits Relevant to Your Situation

Tax credits and deductions can significantly reduce your tax bill, and knowing which ones apply to you is essential. Tax credits directly lower your tax liability, whereas deductions reduce your taxable income.

Tax credits shouldn't be confused with deductions, which can be claimed alongside them. Tax credits directly reduce the amount of taxes owed, dollar for dollar, based on eligible expenses or events. For example, a $1,000 credit lowers your tax bill by $1,000. In many cases, these credits can even help you qualify for a refund.

Common Deductions and Credits

1. Mortgage interest deduction: Reduces taxable income for eligible homeowners.
   
2. State and local tax (SALT) deduction: Allows deductions up to $10,000 for property taxes and either income or sales taxes.
   
3. Student loan interest deduction: Deducts up to $2,500 for interest paid on student loans.
   
4. Child tax credit (CTC): Provides up to $2,000 per qualifying child.
   
5. Earned income tax credit (EITC): Available to low-income taxpayers and can provide up to $7,430 in credits.

Benefits of Leveraging Deductions and Credits

1. Direct reduction of tax liability: Tax credits lower your tax bill dollar-for-dollar, making them especially powerful.‍
2. Deductions lower taxable income: Deductions reduce the portion of your income that’s taxed, potentially moving you into a lower tax bracket.

Additional Credits to Consider

1. American opportunity tax credit: Covers up to $2,500 of education expenses.
   
2. Saver’s credit: Provides a credit for retirement savings contributions, especially beneficial for low-to-moderate income taxpayers.
   
3. Electric vehicle (EV) credit: Available for qualifying electric vehicles, with credits up to $7,500.
   
4. Energy efficient home improvement tax credit: Offers up to $3,200 for home improvements like energy-efficient windows or doors

Final Thoughts

Navigating the tax-saving landscape requires thoughtful planning, but taking the time to leverage these strategies can result in meaningful savings. By implementing tax-loss harvesting, optimizing your deductions, maximizing retirement and health savings account contributions, making charitable donations, and taking advantage of relevant deductions and credits, you can build a solid tax plan and set yourself up for a more secure financial future.

You might even be able to file your taxes for free, but it depends on your tax situation. Here are a few options to check out:

• Turbotax
• H&R Block
• TaxAct