Year-end tax-savings tips

IRAs are a great way to save for retirement and reduce your taxes. The current maximum contribution for both traditional and Roth IRAs is $7,000 ($8,000 if you're age 50 or older). Anyone with earned income can contribute to a traditional IRA, regardless of how much they earn, but Roth IRAs have income limits that affect who can contribute.

Investing in a traditional IRA and contributing the maximum can help reduce your taxable income.¹ And while your contributions to a Roth IRA aren't tax-deductible, you can save money on taxes later. That's because Roth IRAs allow you to make tax-free withdrawals as long as you're age 59½ or older and you've owned the account for at least 5 years.²

Another way to reduce your taxable income at the end of the year is to maximize your contributions to your 401(k) or 403(b) plan. By putting more money into your employer-sponsored plan, you not only set yourself up for a more secure financial future but also lower your current taxable income. For example, if you contribute the maximum amount allowed by the IRS, you can significantly reduce the amount of income that's subject to taxes. This means more money stays in your pocket, and you get a nice tax break while you're saving for retirement.

If you have investment losses in the current year, you can use them to offset both your investment gains and ordinary income up to $3,000. This strategy, known as tax-loss harvesting, is used in taxable accounts to help minimize tax liability. In short, you can sell investments at a loss to offset your gains from other investments.³

If you buy the same investment or any investment the IRS considers "substantially identical" within 30 days before or after you sold at a loss, you won't be allowed to claim a deduction on the loss. This is known as the wash sale rule. If you need guidance on whether an investment would be considered substantially identical, consult a tax advisor.

Your tax-filing status can have a significant impact on your tax liability. If you're considering making a change to your filing status, be sure to understand the tax implications.⁴

For example, if you're married and filing jointly, you'll have a higher standard deduction and a lower tax bracket than if you file separately. However, if you have a high household income, you may be able to save money on your taxes by filing separately. Considering your options now can make for a smoother tax season next year.

Get helpful tax resources and forms

Maximizing tax deductions and credits can be a powerful way to lower your tax bill. A tax deduction reduces the amount of income that's subject to tax, while a tax credit directly reduces the amount of tax you owe, dollar for dollar. For instance, the child tax credit can provide up to $2,000 per qualifying child, and the child and dependent care credit can help cover the costs of child care so you can continue working or look for a job.

If you're still paying off student loans, the student loan interest deduction can reduce your taxable income by up to $2,500. Donating to charity? The charitable contribution deduction lets you write off those contributions. And if you have significant medical or dental expenses, the medical and dental expense deduction can help offset those costs.

If you're over age 70½, you can make a qualified charitable distribution (QCD) directly from your IRA to a qualified charity, which not only counts toward your required minimum distribution (RMD) but also reduces your taxable income. This strategy can be particularly beneficial if you don't itemize deductions, as it allows you to support your favorite causes while potentially lowering your tax bill.

By taking advantage of these and other deductions and credits, you can keep more of your hard-earned money. Find more information on credits and deductions on the IRS website.