Here's How Much the 5 Largest Tax Breaks Could Save the Average Family

2024 tax season is here, and millions of Americans are gathering forms, scouring spreadsheets, and pressing "send" on their tax-filing software. If you're trying to maximize your tax breaks in 2024, it helps to look at the big picture of how tax deductions and tax credits work.

For the purposes of this article, let's look at how a "typical" American family would benefit from these five commonly used tax breaks. We'll assume a family of three (two parents, married filing jointly, both age 40, with one child under the age of 17). And let's assume this family earns the median U.S. household income of $74,580 (before taxes).

Here's how much this "average" American family could save with these major tax breaks for 2024.

1. 401(k) contributions

If you have a 401(k) plan or other employer-sponsored retirement plan at work, you can get an easy tax break. Just by contributing to your 401(k) out of every paycheck, you're reducing the amount of wages or salary income that appears on your tax return. For 2024, employees can put up to $23,000 into a 401(k) or other qualifying plans like a 403(b), 457, or Thrift Savings Plan for federal workers.

Your 401(k) contributions are pre-tax dollars, or "tax-deferred." That means you don't pay taxes on your 401(k) contributions today; instead, you "defer" those taxes far into the future, when you're in retirement and you take withdrawals from your 401(k).

How much this family can save: Let's assume that this family puts a total of 5% of their income into a pre-tax 401(k) account in 2024. That would mean they're socking away $3,729 for retirement -- and subtracting that amount from their income for tax purposes.

2. Traditional IRA contributions

Another form of tax-deductible retirement savings is the traditional IRA (Individual Retirement Account). This account lets people under the age of 50 put up to $7,000 into retirement savings in 2024, and the money is all under your control without having to use an employer-sponsored plan. Depending on your income, you can get a tax deduction for 100% of the money you put into a traditional IRA.

How much this family can save: This family's income is well below the income limits for tax-deductible IRA contributions (they make less than $123,000 per year). So let's say they make $7,000 of traditional IRA contributions in 2024. They'll be able to deduct that full $7,000 from their income at tax time.

3. Health savings account (HSA) contributions

If you have a qualifying high deductible health plan (HDHP), you can get another great tax break. It's called a health savings account (HSA). Let's assume this family gets their health insurance through an HSA-eligible health insurance plan. For 2024, people with family health insurance coverage are allowed to contribute up to $8,300 to an HSA, and there are no income limits.

How much this family can save: Let's say this family puts $200 a month into their HSA. By the end of 2024, they'll have an HSA tax deduction of $2,400.

4. Standard deduction

Many people don't realize this, but there aren't many clever, strategic tax deduction moves left for middle-income taxpayers. You cannot deduct your home mortgage interest, state and local taxes, or charitable contributions unless you take itemized deductions -- and most people don't.

The biggest tax break that many families get comes from the standard deduction. As a result of changes made by the Tax Cuts and Jobs Act of 2017, 87% of taxpayers now take the standard deduction. That's because the standard deduction has gotten so large that it's often a better deal for taxpayers to take the standard deduction instead of itemizing.

How much this family can save: We're going to assume that this middle-income family will take the 2024 standard deduction of $29,200 for married couples filing jointly.

5. Child tax credit

The Child Tax Credit is a valuable tax benefit for parents because it doesn't just reduce your taxable income -- it reduces the total taxes that you owe. As of 2024, the Child Tax Credit is $2,000 per child under the age of 17.

How much this family can save: We have assumed that this family has one child under age 17, so they will get a Child Tax Credit of $2,000.

Total tax savings

Let's do a quick rundown of how these deductions would work on this family's tax return. The following table shows our assumptions from above, based on how much this family is saving with each type of tax-deductible account, plus the Child Tax Credit.

Here's how much the typical family could save on taxes, compared to what they would owe if they did not put any money into a 401(k), IRA, or other tax-deductible accounts.

These five tax breaks would save this typical American family about $1,576 on taxes for 2024 compared to what they would owe without using any tax-deductible accounts. Want to save on taxes? Try to maximize your 401(k), traditional IRA, and HSA contributions in 2024.