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Paying taxes is something a lot of people only think about when they sit down in April to file a return. But it’s helpful to understand the factors that can cause your tax bill to rise.

Here are a few reasons you may end up owing more to the IRS for 2024.

1. Your bank paid you a lot of interest

Savings accounts and certificates of deposit (CDs) have been paying generously since the start of the year. That’s a good thing, but the flip side is it may cause you to owe more taxes.

Interest income is not only taxable but taxable at your ordinary income tax rate. If you’re in the 22% tax bracket based on your income, that’s the rate you’ll pay on the interest you earn in a savings account or CD.

Let’s say you earned $400 in interest from your savings account this year, plus another $1,000 from a CD. If you didn’t pay estimated taxes on that income already, expect to owe it when you file your 2024 tax return in 2025.

Of course, your goal should be to earn the most interest you can from your bank. If you’re not happy with your rates, click here for a list of the best savings account rates. And check out these top CD rates, too. But also be aware of the impact savings account and CD interest have on your taxes.

2. You earned a lot from a side hustle

Worked a side gig in 2024? If you were hired by a department store or small business, you may have received a series of paychecks that had taxes deducted from your hourly wages. But if you worked independently, as opposed to as a part-time employee, then you may not have paid taxes to the IRS on your extra income. If that’s the case, prepare to owe more for 2024.

Keep in mind that even if you’re paid cash for your side hustle, you’re required to report that income to the IRS. And if you worked as a restaurant server, make sure to report your tips, not just your hourly wages.

3. You sold investments at a profit

The S&P 500 has done fairly well this year, so you may have opted to capitalize on that by selling investments in your brokerage account at a profit. If so, you’re required to pay capital gains taxes on those investments.

However, don’t worry about investments you sold at a profit in an individual retirement account (IRA). You don’t have to pay taxes on those gains immediately. Rather, they’ll come into play when you take withdrawals from that account in retirement.

Ways to offset a higher tax bill

If you’re worried about owing the IRS more taxes in 2024, there are a few strategies you can use. First, contribute more to your IRA. If you have a traditional IRA, you can put in up to $7,000 this year if you’re under age 50, or up to $8,000 if you’re 50 or older. And those contributions will shield that much of your income from taxes.

Another option? See if you have losing investments in your brokerage account you can sell at a loss. You can use investment losses to offset capital gains. You’re also allowed to use up to $3,000 in investment losses per year to offset ordinary income.

The more you boost your income in a given year, the more taxes you might owe. This doesn’t mean you shouldn’t try to earn as much as possible, whether by working a second job or choosing the right savings account or CD. But it’s important to know how that extra income could affect your tax liability. It’s also a good idea to enlist the help of a tax professional to figure out ways to keep your tax bill to a minimum.

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