How to Lower Your Tax Bill Next Year
Knowing how to lower your tax bill (pay less taxes) requires some strategizing. Here are some tax tips to help make it happen.
![Down arrow with money for lower taxes on a blue background](https://cdn.mos.cms.futurecdn.net/QXrTNv8vxdtqFPJXvccjd5-415-80.jpg)
Knowing how to lower your tax bill requires understanding your tax situation. Several factors contribute to your overall tax liability, including (but not limited to) a change in income and aging dependents. And receiving a tax refund last tax season doesn’t guarantee you will receive one next year.
Staying up-to-date on federal tax changes and state tax changes can help you understand how to pay less in taxes on your income in 2024.
Lower your tax bill with deductions and credits
Taking advantage of often overlooked tax deductions and credits can potentially lower your tax liability and help you avoid a big tax bill (or get a bigger refund). Keeping detailed tax records throughout the year can also help keep you from missing out on those money-saving deductions and credits when you file your tax return next year.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
This is especially important for taxpayers who plan to itemize deductions. For example, you'll need to keep receipts if you plan to deduct gambling losses or charitable contributions.
Even if you claim the standard deduction, you might benefit from keeping detailed receipts as well. Some examples of expenses that can be deducted include:
- Energy-efficient home upgrades (energy-efficient windows, home energy audits, solar panels, etc.)
- Some college expenses or scholarships (excludes room and board, transportation, sports and hobbies, non-credit courses, insurance, and medical, personal, living, or family expenses.)
- Childcare expenses (nanny, babysitter, daycare costs)
- Medical expenses (if you use your Health Savings Account (HSA) or Flexible Spending Account (FSA) to pay them or if you plan to itemize deductions)
Having organized receipts will tell you exactly how much you spent, but being able to document your expenses can also protect you if the IRS chooses your return for a tax audit.
Consider life changes and your tax liability
Life changes can drastically impact your tax liability, sometimes without you even realizing it. While the following list does not cover all situations that can impact your taxes, you might see a bigger tax bill if any of these applied to you last year.
- Collecting retirement benefits while continuing to work: Social Security retirement benefits are subject to federal income tax, and some states tax retirement benefits
- Age of dependents: Dependents who turn 17 years old this year will not qualify for the child tax credit.
- Work status of dependents: If your dependent is not a qualifying child (for example, a domestic partner) and exceeds the income threshold, you cannot claim them as a dependent. (For the 2024 tax year, a non-child dependent can't make more than $5,050 in gross taxable income to qualify as a dependent. )
You can use the IRS’s Interactive Tax Assistant to find out who you can claim as a dependent on your 2024 tax return.
Pay estimated taxes (if you need to)
The IRS reminds taxpayers to make estimated tax payments if they expect to owe more than $1,000 in federal taxes (after accounting for deductions and credits). Employees can opt to have more taxes withheld from their paychecks.
If you do not have taxes withheld throughout the year, you’ll likely need to pay estimated taxes each quarter. If you don’t, the IRS could penalize you, further increasing your tax bill. When you miss an estimated quarterly tax payment deadline, the penalty is 0.5% of your unpaid taxes for every month (or partial month) the payment is late.
Check retirement contributions
You can also lower your tax bill by taking advantage of retirement contributions. You can contribute a portion of your income tax-free (until you make withdrawals).
Retirement savings plan contribution limits for 2024 (returns you'll file in early 2025) have increased $500 from last year to $23,000 (for traditional 401(k), 403(b), and the federal government’s Thrift Savings Plan. And 2024 traditional IRA contribution limits have also increased to $7,000, up from $6,500 last year. Not counting that money toward your taxable income means the IRS will take less in taxes.
Note: Roth IRA contributions are not tax-deductible, but earnings grow tax-free.)
However, your tax liability will increase if you make early retirement withdrawals (before age 59 ½ ). The money you withdraw will be counted in your taxable income, but you might also face an additional tax penalty of 10%.
2024 federal income tax brackets
Not all 2024 tax changes will cost you more money. In fact, you might see your 2024 tax bill reduced without any effort. Federal income tax brackets are increased yearly to account for inflation.
This is good news if you didn’t get a raise at your job, but even if you did, the tax bracket adjustment might help you avoid having to pay a higher percentage of taxes on that income.
Check your tax withholdings
The IRS reminds taxpayers to reassess their tax withholdings each year, regardless of their tax liability the previous year. (Sometimes, even minor changes can have an impact on your tax bill.)
- Qualification for the Earned Income Tax Credit (EITC): An increase in income or change in the number of dependent children can reduce the amount of the credit you qualify for.
- Placement in a higher tax bracket: An increase in your income could push you into a higher federal income tax bracket, (sometimes called "bracket creep," which means you might pay a higher tax rate on some of your earnings.
Withholding changes made now can impact your 2024 tax bill, so updating withholdings could prevent a surprise tax bill next year. You can use the IRS’s Tax Withholding Estimator to help you determine if you should adjust your withholdings for 2024.
Related Content
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Katelyn has more than 6 years of experience working in tax and finance. While she specialized in tax content while working at Kiplinger from 2023 to 2024, Katelyn has also written for digital publications on topics including insurance, retirement, and financial planning and had financial advice commissioned by national print publications. She believes knowledge is the key to success and enjoys providing content that educates and informs.
-
Eight Key Steps to Take When Investing in the Stock Market
The stock market can be a confusing place for beginners, but it doesn't have to be.
By Kiplinger Advisor Collective Published
-
Confused by Annuities? Making Sense of the Different Types
Many investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC® Published
-
IRS Ends Inherited IRA Confusion: Annual RMDs Required for Many
IRAs The agency has resolved a major point of uncertainty for inherited IRA beneficiaries.
By Kelley R. Taylor Last updated
-
$145 Million in ‘Senior Freeze’ Checks Mailed
Property Tax What you need to know about New Jersey's property tax relief program for older adults.
By Kate Schubel Published
-
TaxAct Class Action Settlement: Details to Know
Tax Filing A multimillion-dollar settlement over alleged data privacy violations affects some TaxAct users.
By Kelley R. Taylor Last updated
-
An IRA Contribution Option You Might Not Know
IRAs Retirement savings might not have to take a back seat just because your partner doesn't earn income.
By Kelley R. Taylor Last updated
-
Project 2025 Tax Overhaul Blueprint: What You Need to Know
Tax Proposals Some people wonder what Project 2025 is and what it suggests for taxes.
By Kelley R. Taylor Last updated
-
The Taxes That Come out of Your Paycheck
Payroll Tax Your take-home pay is often less than expected due to several payroll tax withholdings you need to know.
By Kelley R. Taylor Last updated
-
Seven States Where Gas Tax Increased July 1
Gas Taxes Since July has arrived, drivers in several states are facing a gas tax hike.
By Kelley R. Taylor Last updated
-
401(k) Withdrawal Penalty Rule Changes for 2024
Tax Rules More people are taking early emergency withdrawals from retirement savings accounts. New rules might offer some relief.
By Kelley R. Taylor Last updated