Unlocking Savings Potential A Step-By-Step Guide to Income Tax Returns for 2024

The key to reducing your tax burden is staying up-to-date on changes and taking advantage of money-saving strategies. It includes leveraging deductions, keeping records organized, and seeking professional guidance.

Allocating your income tax return to an emergency fund will help you weather financial storms while strengthening your savings foundation. It is especially critical for high-income earners.

Industry-Specific Strategies

As you plan for 2024, there are many strategies you can implement to unlock the savings potential of your income tax return. Whether you’re a business owner, employee, or self-employed individual, these simple steps can help you reduce what you pay in taxes this year.

Taking advantage of the benefits of high-yield savings accounts is critical to making your money work smarter. Many of these accounts offer features such as automatic transfers, online banking capabilities, and budgeting tools to support your financial goals. It’s essential to review the terms and conditions of each account before deciding which one is right for you.

Consumers can unlock their savings potential by utilizing simple strategies such as “sweeping” surplus cash from current accounts into interest-generating savings and rounding up small amounts of change from shopping bills to add to their financial pot. The open banking revolution has enabled these and many other creative ways of saving, providing thousands of households with more innovative, sustainable savings approaches. 

Employee-Related Tax Considerations

Wages are compensation for an employee’s services, whether paid by check, cash, or the reasonable cash value of noncash payments (such as food and lodging). Most types of wages are subject to payroll tax withholding, including federal income taxes, Social Security and Medicare taxes, state unemployment insurance taxes, and, if applicable, additional Medicare taxes. Their filing status determines the amount of payroll taxes withheld from an employee’s paycheck, the number of dependents, other factors, and their employer’s withholding rates. The IRS provides a worksheet, Form W-4, to help employees fine-tune their withholding and project what they will owe come tax time.

In addition to withholdings, most states impose a personal income tax on wages and other income. This revenue source makes up a significant percentage of state governments’ revenues. Employees also face the possibility of local taxes, depending on where they live.

Most individuals can use TurboTax coupons to seek tax deductions, which lowers their taxable income. Standard deductions and local income or property taxes paid are the most popular; the standard deduction varies depending on filing status. Furthermore, some taxpayers can use tax credits to immediately reduce their bills rather than deducting anything from their taxable income.

Many individuals receive tax refunds, which result from overpayments of estimated taxes. The IRS explains that these overpayments occur when an individual has too much withheld from their paycheck or qualifies for enough tax deductions and credits to eliminate their tax liability. A tax return calculator considers all of these factors to determine if an individual is likely to get a refund and how significant that refund could be.

Self-employed workers, independent contractors, and freelancers typically pay their taxes every quarter instead of in one lump sum on tax day. These individuals must estimate how much they will owe throughout the year and then make quarterly payments via Form 1040-ES. By making quarterly payments, these individuals can avoid a substantial penalty if they unexpectedly overpay or underpay.

Tax Credits

Tax credits differ from deductions because they directly reduce a taxpayer’s tax liability dollar-for-dollar. By contrast, deductions reduce taxable income by an amount multiplied by the applicable tax rate. As a result, tax credits tend to be more valuable for lower-income families than deductions.

Unlike deductions, which may only apply to specific types of income, most tax credits can be claimed on a wide range of income levels. As a result, they can provide significant savings opportunities for almost any family or business.

Many tax credits are designed to encourage certain behaviors deemed beneficial to society, such as making energy-saving adjustments to homes or businesses, investing in education, or making charitable donations. These credit programs allow Eligible taxpayers to receive hundreds or even thousands of dollars.

For example, Section 179D deduction allows small businesses to claim costs for installing energy-efficient improvements in their facilities. It can help them achieve reduced capital costs, improved cash flow, enhanced profitability, and a positive impact on the environment.

Reviewing the full scope of available tax credits and incentives is essential to identify the most useful ones. It can be time-consuming and may require some research to understand the details of each credit, which often change from year to year. To simplify this process, partnering with a tax professional is sometimes helpful.

A tax professional can help you identify and claim all eligible credits and deductions, including those often overlooked. It can also ensure that your tax refund is maximized.

A tax professional can also ensure that your tax return is filed correctly. It will help you avoid mistakes that could lead to costly penalties and interest charges. For one fee, a local expert matched to your unique situation will do your taxes for you from start to finish. Or file your return for only $50 with our simple step-by-step software. There are no hidden fees or charges.

Retirement Plans

Many tax deductions and credits are available to help reduce your taxable income. Some big ones include retirement contributions, health savings accounts, donations to charity, and investment losses. However, even after claiming all these deductions and credits, your taxable income may need to be lowered to qualify for some government benefits.

You can lower your taxable income dollar-for-dollar with yearly contributions to employer-sponsored retirement plans, such as 401(k) and 403(b). Many businesses also offer to match employee contribution amounts, further reducing your taxable income. You can access your 401(k) account online through your employment portal or contact your human resources team for more information.

Another way to lower your taxable income is through an individual retirement account (IRA), such as a traditional or Roth IRA. Invest your savings in various assets for flexibility and increased wealth, regardless of employment status. You can open an IRA online or contact your financial advisor for more information.

Investing in stock options can lower your taxable income if you work for a publicly traded company. These options allow you to purchase or sell company shares at a fixed price. These options can be complicated, but strategically exercising them may help minimize taxes while positioning yourself for future growth opportunities.

The timing of retirement can significantly impact annual withdrawals. For example, if you’re 15 years away from retirement, you can invest a smaller percentage each month and take a more aggressive approach to investing than if you’re a few years closer.

Once you’re closer to retirement, you can begin unlocking the value of your locked-in savings through a life income plan (LIP) or registered retirement income fund (RRIF). By doing so, you’ll be able to use the funds when you need them without facing maximum withdrawal restrictions. A financial advisor can help determine if you’re ready to unlock the value of your investments for retirement.