Understanding the tax code can be overwhelming for even the most well-versed taxpayers, leading many to avoid tax optimization strategies altogether. Most just want to get them over with.

But it doesn't have to be that intimidating. If you can enter the tax filing process knowing what options you have, it makes things less stressful. After that, you can plan ahead and make tax-saving decisions throughout the year to make filing taxes in 2025 easier. Now you have a better understanding of what to do. 

Let's make it simple — here are the most common tax optimization strategies you might qualify for. 

Our List: Top Tax Optimization Strategies For 2024

Anyone can use these tax optimization strategies — from business owners to traditional employees. 

• Opening and Maxing Out an IRA: Anyone can open an IRA, and whether it’s a Roth or traditional account, IRA owners have the added benefit of being able to contribute for the previous year up until the tax deadline of the following year. For 2024, that’s April 15th.

• Utilize an HSA: If you’re enrolled in a high-deductible health plan, seize the opportunity to contribute to a Health Savings Account (HSA). HSAs also benefit from a similar extended contribution deadline and are tax-deductible up to the 2023 limit of $3,850 per individual of $7,750 for a family. (For 2024, it’s $4,150 and $8,300.)

• Take Advantage of Tax-Loss Harvesting: Tax-loss harvesting can help offset capital gains and minimize your tax liability by selectively selling some of your losing positions.

• Aim for Long-Term Capital Gains: If you plan on locking in some gains from your portfolio, it’s best to go with stocks you’ve held for a year or more. Long-term capital gains are taxed at favorable rates maxing out at 20%, whereas short-term gains are taxed at your ordinary income tax rate.

• Take Advantage of Employer Match: For 2024, the contribution limit on 401(k) accounts is $23,000, but that’s just employee contributions. If you include employer contributions (which often come as a match), that limit rises to $69,000.

Taking Advantage of Tax Credits for Tax Optimization

Here are some of the most common tax credits you might qualify for.

• Child Tax Credit or Child and Dependent Care Credit: Depending on your situation and income, the CTC can provide up to $2,000 in credits per child. Care credits are meant to cover a portion of child care costs, and are typically up to 35% of $3,000 in expenses for a single dependent or $6,000 for two or more dependents.

• American Opportunity Tax Credit: If you're pursuing higher education, this credit could be a game-changer, providing relief from the costs associated with tuition and related expenses. It covers the first $2,000 you spend on qualifying education costs and 25% of the next $2,000 — up to $2,500.

• Earned Income Tax Credit: The Earned Income Tax Credit (EITC) is available to low-income taxpayers, both with and without children. In 2023 (applicable to taxes filed in 2024), the credit varies from $600 to $7,430, determined by factors such as the number of children, marital status, and income level.

• Saver’s Credit: The Saver's Credit ranges from 10% to 50% of contributions, up to $2,000 ($4,000 for joint filers), made to an IRA, 401(k), 403(b), or select retirement plans. Your filing status and income determine the specific percentage you qualify for.

• Electric Vehicle (EV) Tax Credit: In the tax year 2023, the nonrefundable Electric Vehicle (EV) tax credit spans from $3,750 to $7,500. Additionally, individuals can qualify for a credit of up to $4,000 for used cars. Meeting specific criteria, including income, vehicle price, and adherence to IRS manufacturing guidelines for qualified EVs, determines eligibility for these credits.

• Solar Tax Credit: This credit allows you to claim 30% of the installation expenses for solar energy systems, encompassing solar water heaters and solar panels. Embrace the sun's energy while enjoying a substantial financial benefit.

• Energy Efficient Home Improvement Tax Credit: Revitalized by the Inflation Reduction Act, the energy-efficient home improvement tax credit enables homeowners to reclaim up to $3,200 for qualifying upgrades like energy-efficient windows, doors, and heat pumps when filing their tax returns.

Taking Advantage of Tax Deductions for Tax Optimization

If you have enough itemizable expenses, consider these deductions.

• Student loan interest deduction: Borrowers can deduct up to $2,500 from their taxable income through the student loan interest deduction when they have paid interest on their student loans.

• Charitable donation deduction: For itemizers who donated, you have the potential to deduct the value of your charitable contributions—whether in cash or property, like clothing or a car—from your taxable income. As per the IRS guidelines, you can typically deduct up to 60% of your adjusted gross income.

• Medical expenses deduction: Simply put, you can usually deduct qualified, unreimbursed medical expenses that exceed 7.5% of your adjusted gross income for the tax year.

• Mortgage interest deduction: Promoted as a means to enhance the affordability of homeownership, the mortgage interest tax deduction reduces the federal income tax for eligible homeowners by deducting the amount of mortgage interest paid from their taxable income. Yes, you can deduct the full amount.

• IRA and 401(k) contributions deduction: Stating the obvious here, but traditional IRA and 401(k) contributions are also tax-deductible, and you don’t have to itemize for these.

• Deduction for state and local Taxes: Utilizing the SALT deduction, you have the option to deduct a maximum of $10,000 ($5,000 for those married filing separately) for a combination of property taxes and either state and local income taxes or sales taxes.

Tax Optimization For Self-Employed, Side Hustlers, and Business Owners 

For those with entrepreneurial endeavors, consider these specialized strategies.

• Increase Tax Withholding at Your Job: If you have a W2 position too, increase the tax withholding at your job — self-employed individuals owe what's known as SE (self-employment taxes), and they're meant to be paid quarterly throughout the year. If you overlook this, you might end up with a hefty tax bill come next tax season. Increasing the withholding amount from your usual W2 income can help offset this or even cover it fully.

• Save Money for Taxes Ahead of Time: Create a separate fund to set aside money for taxes, ensuring you're prepared when tax season arrives.

• Open a Solo 401(k): A Solo 401(k) is for self-employed individuals or small business owners with no full-time employees, except a spouse. If you work for yourself and meet this criterion, you can qualify for a Solo 401(k). You can contribute up to $23,000 or 100% of compensation as an employee, whichever is less, with an extra $7,500 if you're 50 or older. As the employer, contribute up to 25% of compensation, capped at $69,000 (or $76,500 with the catch-up).

• Meticulously Track Business Expenses: Maintain a detailed record of all business expenses to maximize deductions and minimize taxable income.

Tax Optimization With Origin 

Taxes can be complicated — we make them easy. Origin has partnered with Column Tax to bring tax-filing services to members at no additional cost with a maximum refund guarantee. 

Not only does Origin equip you with all of the educational tools to learn about taxes on your own, but we’re also a one-stop shop to manage your money. Invest, budget, save, track, learn, file taxes, and manage your money all in one place.

Disclaimer:

Maximum Refund Guarantee. Column Tax will reimburse you for up to $250 if you are able to pay less federal or state income tax or receive a larger federal or state income tax return by using another tax return preparation provider. To be eligible for such reimbursement, the difference must be solely due to calculations, not due to entering any additional information or taking any different tax positions. To be eligible for such a reimbursement, you must file your federal (and if applicable state) income tax returns using the other tax preparation provider and must submit a copy of such return within sixty (60) days of filing via letter to 228 Park Ave S, PMB 22299, New York, New York, 10003, US or via email to support@columntax.com. You must also provide proof of payment for the other tax preparation provider and Column Tax will reimburse you for that amount (up to $250). Column Tax reserves the right to request additional information to support your claim that the other tax preparation provider calculated a lower tax liability or larger refund amount and that any such difference was not the result of different information.