IRS – August Law

Last week we looked at four different ways to lower your tax liability for 2023, from adjusting your tax withholding to strategically planning your medical procedures. In this week’s blog, we discuss four more tax-saving methods you can use right now to owe fewer taxes come April 2024.

If you missed part 1 of this series, be sure to read it here so you don’t miss out on these money-saving techniques.

Make Charitable Gifts

Giving back to your community or supporting causes you care about is not only rewarding but can also provide tax benefits if your family’s tax deductions are close to exceeding the standard tax deduction.

The standard deduction for 2023 is $12,950 for individuals and $25,900 for married couples filing jointly. Remember that the total of your itemized deductions, including charitable contributions, must exceed the standard deduction for your filing status to provide a tax benefit.

If you’re nearing the top of the standard deduction threshold, this year may be a great time to contribute to a charitable organization that is important to you. Doing so will help support a good cause and allow you to make itemized deductions for an extra reduction in your taxable income for the year.

If you make any charitable donations, keep detailed records of your donations, including receipts and acknowledgments from the charities. If you donate non-cash items (such as clothing or household goods), make sure to document their fair market value.

If you aren’t sure how to document your donations or aren’t sure if a charitable donation will be advantageous to you this year, be sure to discuss this with your tax professional.

Consider Tax-Loss Harvesting

Tax-loss harvesting is a strategy designed to offset capital gains by selling underperforming investments. This technique can help you minimize the taxes you owe on your investment gains.

The first step is to identify investments in your portfolio that have experienced losses and then sell those investments to realize the losses. After all, you haven’t actually lost or gained capital until the money enters or leaves your portfolio.

By selling underperforming investments, you can now use the lost capital to offset any capital gains from other investments that are doing well. Losses can be used to offset up to $1,500 for individuals filing separately or up to $3,000 for couples filing jointly.

It’s important to remember that there are rules and limitations when it comes to tax-loss harvesting. Consult with a financial advisor or tax professional to ensure you execute this strategy correctly and in a way that aligns with your overall financial goals.

Pay Your January Mortgage Payment in December

If you’re a homeowner with a mortgage, making your January mortgage payment in December can provide a valuable tax advantage. Mortgage interest is deductible on your income tax return, and prepaying your January mortgage payment in December gives you an extra month of interest to deduct on your 2023 taxes.

However, before implementing this strategy, check with your mortgage lender to ensure that they apply the payment correctly. Some lenders may automatically apply extra payments to your principal balance rather than counting them as interest for the next month.

Max Out Your IRA (Individual Retirement Account) or Roth IRA

Retirement planning is crucial for long-term financial security, and IRAs are excellent vehicles for saving for your golden years. For the 2023 tax year, the maximum contribution limit for both traditional and Roth IRAs is $6,500, with an additional $1,000 allowed for those aged 50 or older. It’s essential to understand the differences between these two types of IRAs to choose the one that suits your needs best.

Traditional IRA contributions may be tax-deductible, potentially reducing your taxable income for the year. However, withdrawals in retirement are subject to taxation.

Roth IRA contributions are made with after-tax dollars, so they don’t provide an immediate tax deduction. However, qualified withdrawals in retirement are entirely tax-free.

By maximizing your contributions to your IRA of choice, you can secure a more comfortable retirement and possibly reduce your tax liability for this year.

The Foundation of Life-Long Support and Security

Proactive year-end tax planning can significantly impact your financial well-being. By implementing these eight tax-saving strategies, you may be able to keep more money in the bank and take a step toward a brighter financial future.

But good money management is only one part of the equation for a life you love and a legacy that will guide and support your family for generations to come.

Making the best strategic decisions to protect your family’s health, finances, and happiness is equally, if not more, important. If you want to make sure that both your financial and personal life are in order today and structured to give your family the best support possible tomorrow, give us a call.

We would be honored to help you protect everything you own and everyone you love through our heart-centered estate planning services.

This article is a service of August Law, a Personal Family Lawyer® Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Life & Legacy Planning™ Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love.

The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

It might seem a bit early to think about your 2023 taxes, but as the year draws to a close, it’s the perfect time to take a closer look at your financial situation and make some strategic moves that can help you minimize your tax liability come April.

Year-end tax planning isn’t something you do at the last minute; it’s a series of thoughtful steps you can start taking right now. In this blog series, we’ll explain eight key actions you can take during this last quarter of the year to save money on your 2023 taxes.

Let’s get started.

Contribute to Your HSA (Health Savings Account)

A Health Savings Account (HSA) can be a powerful tool for both managing your healthcare costs and reducing your taxable income. HSAs allow you to set aside pre-tax dollars to cover future qualified medical expenses. Contributions to your HSA are tax-deductible, and the earnings grow tax-free. To make the most of this tax-advantaged account, consider maximizing your contributions to your HSA before the year ends.

For the 2023 tax year, you can contribute up to $3,650 if you have self-only health insurance coverage or $7,300 for family coverage. If you are 55 or older, you can also make an additional $1,000 catch-up contribution. By increasing your HSA contributions, you not only reduce your taxable income this year but also build a valuable fund for future healthcare expenses.

If your employer offers an HSA account they may make an annual contribution to the account. If you’re self-employed or don’t have access to an employer-sponsored HSA, you can set up your own through most financial institutions.

Even better, the money you contribute to your HSA never expires and can be used years into the future. Just keep in mind that if you’ve taken money out of your HSA this year to pay a medical expense, that withdrawal will be counted as income on this year’s income tax return.

Contribute to a 529 College Fund

If you have aspirations of sending your children or grandchildren to college, establishing or contributing to a 529 college savings plan is a strategic financial move. These plans offer a tax advantage, as contributions are tax-deductible on the state level. While contributions aren’t deductible on the federal level, any earnings in the account grow tax-free as long as they are used for qualified education expenses.

In 2023, you can contribute as much as you like to a 529 plan, but contributions above $16,000 per year ($32,000 for married couples filing jointly) may be subject to gift tax. Nevertheless, contributing now can help you leverage potential state tax deductions while investing in your loved ones’ future education.

Not sure your child or grandchild will attend college? Funds in a 529 account can also be used for vocational and trade school tuition and fees or elementary and high school tuition costs.

Adjust Your Tax Withholdings

If you are an employee, form W-4 determines how much income tax is withheld from your paycheck each month. It’s essential to review and, if necessary, update your withholding information, especially if you’ve experienced significant life changes such as marriage, divorce, the birth of a child, or changes in your income during the year.

Adjusting your tax withholdings can help you avoid overpaying taxes throughout the year, leaving you with more money in your pocket. On the other hand, failing to update your W-4 could result in underpaying your taxes, which means needing to make a tax payment instead of receiving a refund come tax season, as well as potential penalties. Consult with a tax professional or use the IRS’s online withholding calculator to determine the correct withholding for your specific circumstances.

If you work as a 1099-independent contractor or own a business, you should meet with your tax professional to determine if you need to make any changes to the structure of your business, or establish retirement accounts, before the end of the year. If you need help knowing what to bring to your tax professional, or how to ask the right questions, give us a call.

Schedule Medical Procedures Strategically

Medical expenses can add up quickly, and the tax code provides a deduction for qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI) for the 2023 tax year. To maximize your deduction, consider scheduling necessary medical procedures before the year ends.

While not every medical need can be planned ahead of time, if you know you’ll need or want an elective surgery, try to schedule it before December 31. Similarly, if you’ve met your out-of-pocket maximums for health or dental insurance, now is the time to get all members of your family in for any remaining check-ups or follow-up procedures.

If you don’t think they’ll meet the threshold for medical deductions this year but anticipate a large medical bill like a birth or surgery next year, consider delaying any unnecessary medical work until January to take advantage of the medical expenses deductions next year.

Be sure to keep detailed records of your medical expenses, including bills, receipts, and insurance statements, to support your deduction claims.

Looking Out for Your Family and Your Finances

Looking at your finances and seeing where you can save money on your taxes isn’t just about finishing the year off strong and getting organized for tax season. It’s about making strategic moves that position you for success now and help protect and support your loved ones in the future.

To make sure your family is cared for no matter what the future holds, schedule a complimentary 15-minute call. We’d be happy to talk with you about how we guide our clients to create a plan that protects their assets and their family for years to come.

And don’t forget to tune in for part two of our year-end tax planning series, where we’ll explore even more strategies to help you keep more of your money where it belongs – in your pocket.

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