Didn't Qualify for a Tax Refund This Year? 3 Changes to Make Between Now and December
KEY POINTS
- It's not always a bad thing to not get a tax refund, because it means you kept more of your earnings for yourself.
- If you'd rather set yourself up for a refund in 2025, contribute more to tax-advantaged accounts like IRAs, 401(k)s, and HSAs.
- Also look at taking strategic losses in your brokerage account.
As of late March, the IRS had processed more than 90 million tax returns and issued almost 70 million refunds. And the average refund came to $3,050.
But what if you didn't get a refund when you filed your taxes this year? If so, you may be looking to avoid a repeat scenario in 2025.
Now as a point of clarity, not getting a refund isn't necessarily a bad thing. When you get a refund, it essentially means that you gave the IRS a tax-free loan the year before for nothing in return. When you owe a bit of money, it means you kept more of your earnings rather than letting the IRS hang onto that cash.
But still, you may hate not getting money back when you file your tax return. So if you're eager to get a refund or lower your 2024 tax burden, here are three steps to take.
1. Pump more money into a retirement account
You'll need savings to live on once you're retired -- so why not get a tax break in the process? Contributions to a traditional IRA or 401(k) plan serve the very important purpose of exempting some of your income from taxes, provided you don't exceed the allowable limits set by the IRS.
This year, you can contribute up to $7,000 to an IRA, or $8,000 if you're 50 or older. For a 401(k), these limits are $23,000 and $30,500, respectively.
So let's say you put $5,000 into an IRA this year and your income puts you in the 22% tax bracket. That means you've saved yourself $1,110 in taxes.
2. Fund an HSA
A health savings account, or HSA, is a special account that lets you set aside funds for healthcare expenses you can use at any time. Like traditional IRAs and 401(k)s, HSAs are funded with pre-tax dollars, so your contribution exempts some of your income from taxes.
This year, the maximum you can put into an HSA is $4,150 if you have self-only coverage, or $8,300 for family coverage. There's also a $1,000 contribution you can make on top of either limit once you're 55.
That said, you can only fund an HSA if your health insurance plan is compatible with one -- but it pays to check. This year, you're eligible if your health plan has a minimum deductible of $1,600 for self-only coverage or $3,200 for family coverage. Your out-of-pocket maximum also cannot exceed $8,050 or $16,100, respectively.
3. Take strategic losses in your brokerage account
Because the purpose of investing your money is to make money over time, it's generally not the best idea to dump stocks the moment their value declines. But if you have a stock in your portfolio that's been consistently losing value over time and you don't expect it to recover, selling it at a loss this year could lower your tax burden.
Losses from investments can be used to offset capital gains. So if you have another investment you sold at a profit, you'll need to pay taxes on it -- unless you have a loss you can use against it. And if you don't have capital gains to cancel out, you can use up to $3,000 from an investment loss to offset ordinary income.
Remember, it's really not the worst thing not to get a tax refund, because it means you kept more of your money for yourself as you earned it. But if you want to shrink your 2024 tax liability, then it pays to make these moves between now and December.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
Related Articles
View All Articles