Are you unsure of your tax bracket and looking for ways to reduce your tax burden? Here are some ideas to consider.
First, a primer. In the United States, our tax system progresses through seven brackets, meaning as you earn more, your incremental income is taxed at higher rates. The IRS updates these brackets yearly to reflect inflation, impacting how much you owe based on earnings and whether you’re single, married (filing jointly or separately), or head of a household. Essentially, each portion of your income is taxed according to these brackets, starting at a lower rate and increasing for higher income portions, ensuring equitable taxation across different earnings.
2024 Tax Brackets
Ways to Potentially Lower Your Tax Bracket
If your income bumps you into a higher tax bracket, you may want to consider some of these tactics to lower you income and move down a bracket.
- Put more into retirement savings or a health savings account (HSA): Each dollar you contribute to a workplace 401(k), traditional IRA or an HSA reduces your annual taxable income.
- Bunch deductions: If you itemize, you may be able to save on your taxes by concentrating deductions in one year, then skipping them next year. For example, if you plan to make annual charitable contributions to your favorite nonprofit organization, you can contribute two to three years of contributions in one year instead to exceed the standard deduction.
- Delay income: If you are expecting to make more money than usual in a particular year, it might make sense to ask for a delayed payout to push that extra money into the following year, if you expect your income to be lower.
- Harvest tax losses: Tax-loss harvesting is a strategy where you sell investments that have lost value to realize losses, which can then be used to offset taxable gains on other investments. By reducing your overall taxable income, you can potentially lower your tax bill. However, it’s important to be aware of the wash-sale rule, which prohibits buying a substantially identical asset within 30 days before or after the sale, to claim the tax benefit.
Each situation is unique, so if you are interested in learning more about these strategies to move into a lower tax bracket, reach out to us so we can run some scenarios and potentially reduce your tax burden. We are happy to help!