By Ashlyn Harmon
Now that the year is coming to a close, it may be time to take a final look at 2023 and make sure you are set up for success for the upcoming tax season! I reached out to a local accountant, Rusty Brodie CPA, to ask if he had any tax tips for people to keep in mind before the year ends. While taxes are highly individualized, here are a few tips he recommended for everyone to look into!
Contribute to Retirement Funds
By contributing to a 401(k) plan or an IRA, you can save money for retirement while simultaneously lowering your taxes. For 2023, the allowable contribution limits have increased so make sure you have increased your contributions accordingly. For example, for 2023, you can contribute $6500 to an IRA with an additional $1000 if you are over 50. Additionally, by using these programs some low and moderate income earning taxpayers may qualify for a savings credit! Be careful, though, as both 401(k) accounts and IRAs have contribution limits, you will be penalized for exceeding contributions. Find out the amount that is right for you and make your contributions before the end of 2023.
Give to Charity
Embracing the spirit of giving this holiday season can also help lower your taxes! You can deduct donations, either of cash or of property, if you are claiming itemized deductions on your 2023 tax return. If you normally aren’t able to donate enough per year to justify claiming itemized deductions, you can use a “bunching” strategy and combine multiple years of charitable donations into a single year, so you can deduct those donations in one year, rather than passing on itemized deductions every year. There aren’t many limitations with charitable deductions (though you generally can’t surpass 60% of your AGI), so the more you give, the more you can deduct from your tax bill!
Another recommendation is to prepay property taxes if possible. By prepaying 2024 property taxes, you can deduct them on your 2023 return. However, you will not be able to deduct them again on your 2024 return, so be mindful. Remember, this deduction is limited as well, so if your 2023 property taxes already surpass the limit, it may not be smart to prepay for 2024.
Similarly, if you are paying college tuition bills for yourself or a child, prepaying these may let you claim tax credits. For example, the American Opportunity tax credit or the Lifetime Learning tax credit. You can’t claim both of these, and there are many limitations, so it can be worthwhile to see which of these you may qualify for.
If you’re itemizing your deductions, you may be able to deduct qualifying medical expenses. So, you may save on taxes by visiting the doctor before the year ends. Also, if you have unused money in a medical flexible spending account, an end of year doctor visit can also help use this balance so those leftover funds aren’t lost!
Opening a Health Savings Account (HSA) can also help you pay for medical expenses if you qualify. In fact, like a 401(k) or IRA, an HSA can also be used to save for retirement. Money in an HSA can grow, tax free, but keep in mind that there are limits to how much you can contribute to an HSA as well!
Don’t wait until April to reach out to a tax expert! Talk to a tax professional to see which of these tips may benefit you, and to receive more personalized tax advice before the year ends! The best ways to manage your taxes are always changing (for example, this year has brought many more tax incentives for green energy), so make sure you are aware of all of your options before the year is over!