The Federal Reserve isn't in a rush to cut rates, which means you could be on the hook for more taxes next year on the interest you earn now. However, a few smart moves can help you soften that blow.

Higher rates in recent years have allowed many banks to raise rates on savings accounts, 澳洲幸运5官方开奖结果体彩网:money market accounts, and 澳洲幸运5官方开奖结果体彩网:Certificate of Deposit (CD) accounts, which 澳洲幸运5官方开奖结果体彩网:increases the amount savers earn ♒in interest.

The IRS treats interest payments of $10 or more as income, meaning taxpayers will pay the same amount in taxes on the interest they earned.

Savers face that 澳洲幸运5官方开奖结果体彩网:situation this year as they prepare to file their 2024 taxes. They may have limited options for offsetting that tax as the filing deadline looms, but here are some ways to🧜 start early and get ahead of next year's tax bill.

Saving In Tax-Advantaged Accounts

Placing money into a CD or high-yield savings typically earns interest quicker, but it also builds up taxes quicker. However, some 澳洲幸运5官方开奖结果体彩网:tax-advantaged accounts are exempt from taxation, or taxation i🦂s deferred 🀅to a later date.

Tax-deferred savings accounts, such as 澳洲幸运5官方开奖结果体彩网:traditional individ🌠ual retirement accounts (IRA🐻), 澳洲幸运5官方开奖结果体彩网:401(k) plans, and 澳洲幸运5官方开奖结果体彩网:Health Savings Accounts, allow you to earn interest on savings and provide immediate tax deductions on all contributions. However, taxpayers will still h൲ave to pay taxes once they withdraw their savings from these accounts.

Savers can also 澳洲幸运5官方开奖结果体彩网:open a CD in a traditional IRA—any contributions to the CD are tax-deductible and 🍌allow savers to defer taxes until they withdraw. Putting a CD in a traditional retirement account typically has a longer ✱maturity date and higher interest rates.

Additionally, savers can offset what they will pay in taxes on an independent CD by contributing the same amount they earn in interest to a tax-deductible savings account such as an IRA or donating it, said Jake Falcon, wealth advisor and CEO of Falcon Wealth Advisors.

"Making interest and having tax liabilities is a good thing. I don't want people to get caught up in paying the least amount of taxes by not investing their money or not earning it," said Falcon. "It's always important to understand that gains are good and taxes are good."

Utilize Tax-Advantaged Investments

Alternati🐟vely, you could 💃look at investing money into bonds that are exempt from federal income taxes.

A 澳洲幸运5官方开奖结果体彩网:municipal bond is essentially a loan given to local, county, and state🐭 governments to pay for capital expenditures, such as the construction of highways, bridges, or schools. In return, the government promises to repay the loan, includi🍒ng interest earned during the time.

Typically, municipal bonds are tax-free at the federal level but can be taxed at the state or local level. 澳洲幸运5官方开奖结果体彩网:Municipal bond funds and 澳洲幸运5官方开奖结果体彩网:municipal money market funds work similarly tax-wise but vary in the type of🐻 🍌investment.

"[You can] place money you don’t need right away into treasuries or municipal bonds issued by your state," said certified financial planner Cathleen Tobin in an email to Investopedia. "A municipal bond fund might also be attractive for people in higher tax brackets, such as 32% or above."

澳洲幸运5官方开奖结果体彩网:Treasury bonds and 澳洲幸运5官方开奖结果体彩网:U.S. savings bonds are debts issued to fund federal spending. Interest earned through these bonds is subject to federal income ta♛x bꦅut not state or local taxation.

However, if the interest earned on a T-bond or a Series EE or I savings bond is used for higher education spending, it is exempt from federal taxes.

Correction, Feb. 14, 2025: A previous version of this article misidentified which type of IRA could offset earnings on a traditional CD. It's an IRA.