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From Deductions to Credits: Your Ultimate Tax-Saving Guide for 2024

From Deductions to Credits: Your Ultimate Tax-Saving Guide for 2024

| January 25, 2024

The IRS opened the tax season officially on January 31st. Being financially responsible can be overwhelming if you don't have an efficient system to help you navigate through.

According to Internal Revenue Service, over 8 million Americans fail to file their taxes on time every year. Even worse, some people are unaware of the consequences from filing late. Essentially, strategy zero should be: Please don’t forget to file your taxes.

Now, when you begin the process of filing, these six tax strategies may help you maximize your returns.

Contribute to a SEP, IRA, or Roth IRA

A SEP IRA or Traditional IRA contribution reduces your current tax liability. However, if you or your spouse participates in a retirement plan at work, your eligibility to contribute to a traditional IRA may be limited. To make a SEP contribution, you need to be self-employed.

Most people overlook the chance to get additional funds in their Roth bucket. This could be a great opportunity to reduce your current tax liability.

Whether you’re filing your taxes as single or married, the contribution to a Roth IRA is limited by modified adjusted gross income (MAGI). If you're 50 or older, you may also make an extra "catch-up" contribution.

Gather Receipts for Charitable Contributions

When filing your taxes, make sure not to leave out any charitable donations made during the year. You can reduce your taxable income by itemizing your deductions, cash, and property donations to eligible charities.

With regards to cash donations, it’s important to keep the receipts for proof. You also need an appraisal of value from the charity for donated property. The documents come in handy when the regulator wants to confirm the donations made.

Report any Cryptocurrency Position or Foreign Bank Account

Taxpayers who hold crypto assets such as Bitcoin, Ethereum, and other cryptocurrencies may have to pay taxes on them when filing their tax returns. When preparing your tax documents, you should declare them as capital gains or losses.

Foreign bank accounts and financial assets must also be declared. Failure to do so may bring hefty fines, penalties, or even jail time. You don't want to be on the wrong side of the law.

Check Your Filing Status

It may sound like a no-brainer, but it’s essential to confirm your filing status before filing your taxes. Are you single or married filing jointly, married filing separately, or head of household?

For most taxpayers, this is straightforward. However, some life events like death of a spouse, divorce, or one partner living away from the other can influence how much tax you owe. You should understand the different filing statuses and their various qualifications to know which suits your situation.

Deducting Investment Interest Expense

Any amount of interest that is paid on loan proceeds and used to purchase investments or securities is considered an investment interest expense. And, in certain circumstances, can be tax deductible. These investment interest expenses include interest on a loan used to buy property held for investment and margin interest used to leverage securities in a brokerage account.

As previously stated, investment interest expense is tax deductible, but not when used for passive ventures, like investing in a business a taxpayer owns, but doesn’t actively manage.  The deductible is also limited to the amount of investment income received. Also, if an investment is held for personal and business gain, any income received needs to be allocated proportionally between them.

Remember, personal investment interest expense is reported on Schedule A of your 1040 tax form.

Check If You’re Eligible for Credits

Tax credits are a great way to reduce the amount of taxes you owe, but most taxpayers miss out on them because they lack awareness of their existence, or they simply don't think about it.

The most common credit sources include energy-efficient home improvement, electric vehicles, and education credits. Did you purchase an energy-efficient home improvements product like a heat pump, water boiler, or certain windows? If so, you should consider the credit you can claim.

The same goes for electric vehicles — check if your car qualifies for the electronic vehicle credit. However, specific vehicle standards and income thresholds must be met to qualify for such incentives. For instance, married filing jointly is a $300,000 threshold, but for single filers, it's $150,000.

Education credits like the American Opportunity Tax Credit and Lifetime Learning Credit are also important. You can use the 1098 tuition form or other documents to support your eligibility for the education credits.

It pays to take all available credits and deductions into account when filing your taxes. Doing so can significantly reduce how much you owe in taxes or increase the amount you receive back during tax season. Find out any credits you may qualify for and check if there are any application deadlines.

As always, the SKG team is here to answer any questions you may have about these tax strategies and more!

Representatives do not provide tax and/or legal advice.  Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice.  Clients should confer with their qualified legal, tax and accounting advisors as appropriate. CRN202507-5804597