Tax Optimization 101: How to Maximize Your Savings

With the April 15 tax filing deadline quickly approaching, now is the perfect time to take a proactive approach to your tax planning. By exploring smart tax reduction strategies, you can lower your tax liability, keep more of your hard-earned money, and set yourself up for financial success in the year ahead. Whether you’re an individual or a business owner, thoughtful planning can make a significant difference.

Below are 10 tax reduction strategies to consider. As always, please consult with a CPA, Oppenheimer Financial Professional, or tax advisor to see how these approaches may or may not impact your specific situation:

Maximize Retirement Contributions

• One of the most effective ways to reduce taxable income is to maximize contributions to your retirement accounts. For individuals, contributing to a 401(k), 403(b) or an Individual Retirement Account (IRA)* can lower your taxable income. For businesses, offering retirement plans like SEP IRAs or 401(k)s not only helps employees save for retirement but may also allow the business to deduct contributions up to a certain amount. You can read more about retirement contribution limits here.
• *IRA Contribution Eligibility is Subject to Modified Adjusted Gross Income (MAGI) limitations

Harvest Tax Losses

• Tax-loss harvesting involves selling investments that have declined in value to offset realized capital gains, thus reducing your tax liability on gains. When capital losses are greater than capital gains you may be able to deduct up to $3,000 from your taxable income ($1,500 if married and filing separately). Losses that exceed $3,000 can be carried forward and used in future years.

Charitable Giving

• Donating to charitable organizations not only supports a good cause, but also offers tax benefits. Overall deductions to public charities, as well as donor-advised funds, generally allow you to donate up to 50% of your AGI (adjusted gross income). The limit increases to 60% for cash gifts. You can also consider donating appreciated securities held for more than one year.  
• If you’re at least age 70 ½, Qualified Charitable Distributions of up to $105,000 may be made tax-free from your IRAs for the 2024 tax year. This limit will rise to $108,000 in 2025. For individuals who are age 73 or older, qualified charitable distributions (QCDs) also count toward the year's required minimum distribution (RMD). You can read more about RMDs and QCDs here.

Tax Efficiency of Your Asset Allocation (and Asset Location)

• Consider the tax-efficiency of the investments in your portfolio. Certain options such as government bonds or municipal bonds may provide certain tax benefits. Others, such as mutual funds, tend to distribute capital gains to the investor (i.e. you) whether you’ve sold the fund or not. The type of account you hold these securities in matters also. A tax-deferred (IRA) or tax-free (Roth IRA) account may be better suited for investments that carry potential tax burdens while after-tax accounts may be better suited for investments that are more tax efficient. Read more about the 2024 Traditional and Roth IRA contribution limits here.

Review and Adjust Withholding

• You should review your tax withholding throughout the year to ensure you are not overpaying or underpaying taxes. Adjustments may be necessary due to changes in income, deductions, or tax laws. Accurate withholding can help avoid penalties and maximize cash flow.

Take Advantage of Tax Credits

• Tax credits can directly reduce the amount of taxes owed. You can explore available tax credits, such as the Child Tax Credit, Earned Income Tax Credit (EITC), and various energy-related credits, to lower their overall tax liability.

Estate and Gift Planning

• Estate and gift planning can be essential for wealth preservation and minimizing estate taxes. Consider strategies such as gifting assets to family members now or to heirs, establishing trusts, or leveraging the lifetime gift tax exemption to pass on assets tax-efficiently. The IRS allows for anyone to gift up to $18,000 per person for the 2024 tax year (this will increase to $19,000 in 2025).

Capitalize on Small Business Tax Deductions

• Small business owners should take advantage of available deductions such as:
  • Business expenses
  • Employee-related expenses
  • Home office deduction
  • Education and training
  • Advertising and marketing
  • Qualified Business Income Deduction (QBI)
  • Retirement Plan Contributions and startup plan costs
  • Travel expenses 
  • Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs)

Consult with Tax Professionals

• Finally, it's important for you to consult with tax professionals, such as certified public accountants or tax advisors, to ensure you are making informed decisions that align with your unique financial situations. Tax laws are complex and are continually evolving, making professional guidance invaluable.

---

With the April 15 tax filing deadline fast approaching, there’s still time to implement these powerful tax-saving strategies and improve your financial outlook. Taking proactive steps now can lead to significant savings. To ensure you’re making the most of these opportunities, working with a trusted tax and financial professional is essential. Start planning today to secure a more financially optimized tomorrow.

Oppenheimer Financial Professionals are here to help. Find one near you today.