I know, this month started off with 10 tax moves to make, or at least consider, by Dec. 31. With 2024 winding down, I wanted to remind you of those suggestions again.
And now, because nagging reminding is just part of who I am, I have a couple more things you might want to think about.
Specifically, you need to look at some of the tax numbers that will come into play when you file your return next year.
This includes the tax brackets — rates and dollar amounts to which they apply — that will determine what you owe the U.S. Treasury, the deduction options that will help reduce what you ultimately pay, and how maximizing contributions to a special medical savings option can pay off beyond this tax year.
Check out your tax bracket: In November, I posted a 10-part series on the Internal Revenue Service’s annual inflation/cost-of-living adjustments to myriad tax matters. Those items featured changes in the coming 2025 tax year.
But each of those 2025-focused posts also included 2024 tax year amounts for comparison. Take a look at those posts now. Or you can look at the prior version that highlighted the 2024 tax year changes.
Whichever inflation series you choose, start with the tax brackets, which is always the first post of the annual collection.
There are seven federal income tax rates — 10%, 12%, 22%, 24%, 32%, 35%, and 37% — into which our earnings will fall thanks to the United States’ progressive tax system.
With your final 2024 paychecks already or soon to be in hand, as well as other earnings like investment capital gains distributions and dividends that have been paid out this month, you should have a good sense of how much gross income you made this year.
A review of the tax brackets will let you know the percentage Uncle Sam will claim on your last taxable dollar. That’s the figure most taxpayers cite when they say they’re in a certain tax bracket.
But technically, even if you made enough to be in, say, the 24 percent bracket, that tax rate doesn’t apply to all your earnings. Some is taxed at 10%, 12%, and 22% before the tax due on the remainder in the 24% bracket is calculated.
That’s good, since there’s not much you can do about the money at this point. And let’s be honest. Most of us aren’t going to turn down pay raises or stock growth just because it means we owe more taxes.
But it is good to have an idea of what the tax damage might be before you sit down to complete your return.
Decide on your deduction method: Savvy readers, which of course is all y’all, noted the key phase in the tax bracket section. It is, of course, “your last taxable dollar.”
All your gross earnings aren’t subject to tax. And the type of money you make — wages, investment income, sales of assets, retirement withdrawals — are taxed differently.
The process of completing Form 1040 takes you along several steps to get from total income to adjusted gross income (AGI) to taxable income. Getting there involves deductions.
Most of us claim the standard deduction, especially since the Tax Cuts and Jobs Act of 2017 essentially doubled those amounts. The standard amounts, which are based on your filing status, are adjusted each year.
The amounts also are listed directly on the Form 1040. You can read more about this year’s standard deductions in Part 2 of the inflation series, but below are the highlights, that is, the standard deduction amounts, that will apply to the 2024 tax year Form 1040 you’ll file next year.
- Single and married filing separately taxpayers: $14,600
- Head of household taxpayers: $21,900
- Married filing jointly and surviving spouses: $29, 200
Other factors, such as age, also mean larger standard deductions. The bottom line, however, is that most people find the standard amounts are more than sufficient to get the best result on their tax filing.
But that doesn’t mean you should automatically rule out itemizing. If you have enough allowable Schedule A items to claim to come to a total more than your filing status’ standard amount, then you want to itemize.
With the end of the tax year approaching, take a look at potential itemized expenses. If you’re close to exceeding your standard amount, see if you can pull in some more to this year to make itemizing worthwhile.
Large charitable gifts also could help you get over the standard-vs.-itemized hump. Bunching your donations into this year lets you give when it helps not only your favorite nonprofit, but also your tax return.
For most people, though, maximizing medical expenses is major determinant when it comes to choosing itemizing. Qualifying health care costs that exceed 7.5 percent of your AGI can be deducted.
Don’t overlook your HSA: Speaking of health care costs, some people opt for coverage that offers lower monthly premiums in exchange for a higher deductible. If you have an aptly-named high deductible health plan (HDHP), you probably have a health savings account, or HSA, to help you cover your insurance costs, like the plan’s titular high deductible.
For 2024, you can contribute up to $4,150 to an HSA if you have individual HDHP coverage. It’s $8,300 for families. Those 55 or older can add another $1,000 to their accounts.
The beauty of an HSA is that it is one of the most tax-advantaged accounts in the Internal Revenue Code.
The money you contribute to an HSA is not taxed. When you take funds out to pay eligible medical costs, those withdrawals are tax-free.
And the amount in an HSA grows tax-free, and for as long as you choose to keep it there. There is no required minimum distribution from an HSA.
So if you haven't hit your HSA maximum yet, now is the time to put more money into your account. Not only will this help with any excessive medical expenses, one day your HSA money could help make your retirement more comfortable.
That’s right, there’s another HSA tax advantage. When you turn 65, you can use the funds for any reason. You will owe tax on the withdrawals, but you won’t face any tax penalty for using the money for non-medical reasons.
Essentially, your HSA turns into retirement savings if you don’t need the money for medical expenses.
OK, it’s true that you do have until Tax Day next year to meet your prior year maximum. That’s next April for the 2024 tax year.
But if you can afford to do so earlier, the money you put into your HSA will have more time to grow.
And if you don’t have the funds now, make a note to add money — maybe some cash you received as a Christmas gift? — to your HSA by next April 15.
You also might find these items of interest:
- 5 gift ideas from Tax Santa
- IVF costs are tax deductible medical expenses
- An RMD to-do list, including ways to use the money
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