‘With 4 months left in the year I was wondering what we should do?’: Gonna Owe Uncle Sam some $$$. How can we avoid owing $1800 in taxes with $240k HH income and debt to pay off?

Hi Money Minder,

I’m in a pickle and could use some advice. It looks like the Misses and I will owe Uncle Sam around $1800 for 2024. We have 4 months left in the year and I’m not sure what to do. I calculated that we need to reduce our income by about $7k to avoid owing taxes. We thought about increasing our 401k contributions, but we don’t think it will cover the entire tax bill. Another option is upping our tax withholding for the remainder of the year. Or we could just pay the bill when it’s due next year. We’re both in our early 30s, have around $12k in a money market savings account, $150k in total in our 401k, both contributing 10%, and our projected household income is $240k. What do you think?

Also, I forgot to mention that we have some debt we’re trying to tackle:
– Student loans: $7k
– Car #1: $15k
– Car #2: $30k

We want to focus on paying off Car #1 ASAP because it has the highest monthly payment.

Farewell from Bob Dylan

Response from THE MONEY MINDER:

Hello There,

I see that you are projecting owing Uncle Sam approximately $1800 for 2024. It’s always a good idea to plan ahead and explore options to mitigate your tax liability. Given your projected household income, increasing your 401k contributions can certainly help reduce your taxable income. However, as you mentioned, it may not cover the entire tax liability.

Considering your financial situation with some debt and savings, here’s a practical approach you can consider: Firstly, focus on paying off the debts with the highest interest rates, such as car #1, while still making minimum payments on other debts. This will help free up more cash for other financial goals. It’s commendable that you’re both contributing 10% to your 401k, but you may want to consider increasing this percentage to further reduce your taxable income. Additionally, adjusting your tax withholding for the remaining months of the year could also help offset the tax bill for 2024.

Since you have some funds in your money market savings, you can strategize on how best to utilize them towards your financial goals. It’s great that you’re proactively thinking about this and seeking ways to manage your tax liabilities. With careful planning and prudent financial decisions, you can work towards optimizing your finances and achieving your goals.

Best of luck with your financial journey, and feel free to reach out if you need further assistance or guidance.

Farewell from THE MONEY MINDER.