Make a Final Push With These Tax Strategies

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It’s never too late to save money. There are ways to cut down on next year’s tax bill, even if you haven’t planned all along. If you’ve earned most of your income, there are still strategies you can implement.

Start with reviewing your financial life. What are the obvious deductions? Then you should dig deeper. There are moves you can make to bring your tax liability down.

Open an IRA

If you have an individual retirement account (IRA), you can deduct your contribution from your taxes. But there are limits. In 2023 and 2024, the annual limit is $6,500 for those under 50. The contribution limit for those individuals over 50 is $7,500.

If you don’t have an IRA, now is the time to open one. Simply choose a broker and go to their website, or you can go to your financial institution. Designate whether you want to be a hands-on or hands-off investor. There are no rules regarding the minimum contribution needed, although some brokers will set a minimum.

You can use an IRA to decrease your tax liability.

Take Advantage of a Health Savings Account

One overlooked deduction is a health savings account (HSA). If your employer offers one, this is a great place to not only lower the tax burden but also pay medical bills.

An HSA lets you set aside money on a pre-tax basis to pay qualified medical expenses. You’ll be able to lower your out-of-pocket health care costs and your tax burden.

The caveat to this is you must have a high deductible health plan.

You don’t want to confuse an HSA with a flexible spending account (FSA). Although an FSA is also pretaxed dollars, you must determine at the beginning of the year how much money you want to contribute. You can’t increase it at the last hour; and you wouldn’t want too anyway. Unlike an HSA, an FSA must be spent by the end of the year, or you’ll lose the funds.

Move Income to Next Year

Try to defer income to next year. If you’re due an end-of-year bonus from your employer, ask if you could receive it after the first of the year.

For those who are self-employed or freelancing, bill clients for any work at the end of December. You’ll then be paid in January.

But keep in mind this is merely kicking the can down the road. Only do this if you think you’ll have a similar or drop in income.

Reduce Taxes With Stock Losses

If you have stocks or mutual funds, you could use “loss harvesting” as a year-end strategy. This will allow you to realize losses. Losses can be used dollar for dollar to offset taxable gains.

But there is a limit as to what you can right off. You can use up to $3,000 of loss to eliminate $3,000 other income. And if you have more than $3,000 worth of loss, it can be carried over to the following year.

As it stands, this strategy will last your lifetime.

Contribute to 401(k)

Increase your contributions to your 401(k). In 2023, an individual can contribute $22,500. If over 50, the dollar amount is $30,000. Even if you can’t afford that, try to at least contribute what your employer is matching.

Bunch Charitable Contributions

Many people don’t itemize, they take the standard deduction when filing taxes. The standard deduction for 2023 is $13,850 for single filers and $27,700 for joint filers. Heads of households receive $20,800.

But if you’ve been donating to charities for several years, you could maximize your savings by bunching your charitable contributions.

For example, if you’re a single filer and usually donate $6,000 a year, you could batch this year and the last two years. You’d have $18,000 to deduct. That’s more than the standard deduction. Keep your receipts and follow this strategy every three years or as often as you can.

The easiest way to distribute funds to charity, and to bunch, is to use a donor-advised fund (DAF). You invest the money through that fund and release the charitable contributions when you’re ready.

When you transfer funds to a DAF it automatically triggers tax deductions. This is true even if you wait to choose a charity.

A DAF makes it easier at tax season. It shows a history and tax-deductible contributions are together.

Consider an Extension

A major way to save money is to file on time. The Internal Revenue Service levies penalties if you don’t meet the April tax-filing deadline.

But you need to take the time to go over what you have. And if you don’t have the time to find deductions, you can file an extension. It’s better to do that than miss out on a lower tax liability.

Always check with your accountant and ask her what your best course of action is.

The Epoch Times copyright © 2023. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.