Although 2024 is in the review mirror, you may still be able to take actions in early 2025 to lower last year’s federal income tax bill. Here are five ideas to consider.
1. Make a Deductible HSA Contribution
If you had qualifying high-deductible health insurance coverage last year, you can still establish a health savings account (HSA) and make a deductible contribution to it for the 2024 tax year. The contribution deadline for a tax year is April 15 of the following tax year.
For 2024, the maximum deductible HSA contribution is:
- $4,150 for self-only coverage, or
- $8,300 for family coverage (anything other than self-only coverage).
The write-off for HSA contributions is an above-the-line deduction. That means you can take it even if you don’t itemize.
The HSA contribution privilege isn’t subject to income limitations. Even billionaires can contribute if they have qualifying high-deductible health insurance coverage and meet the other eligibility requirements.
2. Choose to Deduct State and Local Sales Taxes Instead of State and Local Income Taxes
You may be able to claim itemized deductions on last year’s federal income tax return for state and local sales taxes instead of state and local income taxes. This option may make sense for people who:
- Live in a jurisdiction with low or no state and local personal income taxes, or
- Owe little or no state income taxes for whatever reasons.
Additionally, this option is relevant only if your allowable itemized deductions for last year exceed your allowable standard deduction for last year. The basic standard deductions for 2024 are:
- $29,200 for married couples who file jointly,
- $21,900 for heads of households, and
- $14,600 for single people and married people who file separately.
Important: The annual limit for deducting all categories of state and local taxes (SALT) combined is $10,000 ($5,000 for married people who file separately). So, if you paid more than $10,000 for state and local property taxes in 2024, you’ve already hit the annual limit. You don’t need to consider the amounts paid for state income or sales taxes.
However, suppose you benefit from choosing the state sales tax option. In that case, you can use an IRS-provided table (based on where you live, your income and the number of your dependents) to determine your allowable sales tax deduction. If you use the table, you also can add on actual sales tax amounts from major purchases, such as:
- Motor vehicles, including motorcycles, off-road vehicles and RVs,
- Boats,
- Aircraft, and
- Home improvements.
On the other hand, if you kept receipts from all your 2024 purchases, you can add up the actual sales tax amounts and deduct the total (subject to the overall SALT limitation). This requires significant legwork, but it may result in a higher deduction than using the IRS table.
3. Make a Deductible Traditional IRA Contribution
If you’ve not yet made a deductible traditional IRA contribution for your 2024 tax year, you can still do so between now and April 15. If your 2024 income permits, you can potentially make a deductible contribution of up to $7,000 ($8,000 if you were age 50 or older as of December 31, 2024). If you’re married, your spouse may also be eligible to make a separate contribution.
There’s currently no age limit for making deductible traditional IRA contributions. In prior years, this option wasn’t available to people who were 70 ½ or older. That restriction no longer exists.
But there are some important caveats to consider. First, you must have enough earned income (typically from jobs or self-employment) for 2024 to equal or exceed your IRA contribution for the year. If you’re married, you or your spouse (or both) can be the source of the earned income.
Second, deductible IRA contributions are phased out (reduced or eliminated) if your 2024 modified adjusted gross income (MAGI) exceeds applicable limits and you and/or your spouse participated in a tax-favored retirement plan last year. Tax-favored retirement plans include employer-sponsored plans and self-employed plans, such as Simplified Employee Pensions (SEPs), Savings Incentive Match Plans for Employees (SIMPLE) IRAs or Keogh plans.
The 2024 MAGI phaseout ranges for making deductible traditional IRA contributions are as follows:
- $77,000 and $87,000 for single individuals who participated in a tax-favored retirement plan in 2024,
- $123,000 and $143,000 for married couples who both participated in tax-favored retirement plans in 2024,
- $123,000 and $143,000 for a married individual who participated in a tax-favored retirement plan but whose spouse didn’t participate in a tax-favored retirement plan in 2024, and
- $230,000 and $240,000 for a married individual who didn’t participate in a tax-favored retirement plan but whose spouse participated in a tax-favored retirement plan in 2024.
If you’re single and didn’t participate in a tax-favored retirement plan in 2024, there’s no MAGI limit on making a deductible traditional IRA contribution for 2024 (assuming you have sufficient earned income for the year).
Likewise, if you’re married and neither you nor your spouse participated in a tax-favored retirement plan last year, there’s no MAGI limit on making a deductible traditional IRA contribution for 2024 (assuming you have sufficient earned income for the year). In this situation, both spouses can make separate contributions if you have IRAs set up in your respective names.
4. Add Up Health Insurance Premiums and Medical Expenses
You can claim an itemized medical expense deduction to the extent your total qualifying expenses exceed 7.5% of your adjusted gross income (AGI) for the year. This may seem like a daunting hurdle to clear, but it may be worth considering, especially if you’re older, have a serious medical condition, or support one or more dependents. For example, if you pay health care expenses for an elderly parent who qualifies as your dependent, you can deduct their qualifying expenses, too.
When adding up your medical expenses, don’t forget to include premiums for private health insurance coverage and premiums for Medicare health insurance. These items are costly and can help put you over the AGI limit.
Important: If you’re self-employed or an S corporation shareholder-employee, you can probably claim an above-the-line deduction for your health insurance premiums — including Medicare premiums. Ask your tax advisor for details.
5. Deduct 2025 Personal Casualty Loss on Your 2024 Return
Under current law, you may be able to claim a tax deduction for personal casualty losses from a federally declared disaster. A special rule allows you to claim a deduction on either:
- Your return for the year the casualty event actually occurs, or
- An original or amended return for the year before the casualty event.
In effect, this timing rule allows you to claim the deduction in the year when it’s most beneficial.
If you’ve already been affected by a federally declared disaster in 2025 (such as the recent California wildfires) or you’re hit with another federally declared disaster that happens later this year, you can elect to deduct qualifying losses from 2025 on your 2024 return instead of waiting to deduct it on your 2025 return. Choosing this option may allow you to get tax relief sooner. Plus, if your 2024 income is lower than your 2025 income, claiming the loss in 2024 can also result in a bigger deduction.
How much can you deduct for qualifying losses related to personal-use property? Under the general rules for claiming an itemized deduction for personal-use property losses incurred between 2018 and 2025, the disaster must be on the IRS list of federally declared disasters, and the full amount of the loss isn’t deductible for federal income tax purposes. To calculate your allowable personal casualty loss deduction under the general rules, you must:
- Subtract any insurance proceeds,
- Subtract $100 per casualty event, and
- Subtract 10% of your AGI for the year you claim the loss deduction.
The Federal Disaster Tax Relief Act, which became law in December 2024, liberalized the rules for deducting eligible personal casualty losses for some taxpayers. This law introduced new tax relief for victims of federally declared disasters that began on or after December 28, 2019, and on or before December 12, 2024. It allows eligible taxpayers to claim personal casualty losses without itemizing deductions on Schedule A. In addition, a casualty loss from these qualified disasters doesn’t need to exceed 10% of AGI. However, the $100 limit per casualty is increased to $500.
Important: If you were a victim of a federally declared disaster that falls under the scope of the Federal Disaster Tax Relief Act, you may qualify for a tax refund from a prior year under the liberalized rules. Contact your tax advisor to see if you should file an amended return.
These are the rules for personal casualty losses. Business casualty losses can be deducted without limitations.
Need More Time?
Sometimes, you don’t have enough time to gather your tax information and file by the due date. The IRS allows taxpayers to request an automatic six-month extension of the due date. An extension gives you until October 15 and prevents you from incurring “failure to file” penalties. However, it only provides extra time to file, not to pay. Whatever tax you estimate is owed should still be sent by the April 15 due date of the return, or you’ll incur penalties.
Coming Soon
The federal income tax filing deadline for individuals is just around the corner. Contact your tax advisor to determine whether these or any other last-minute strategies might work for your circumstances.