- With just a few weeks left in 2023, experts say there’s still time to cut taxes and increase refunds.
- You can reduce your adjusted gross income by increasing your pre-tax 401(k) plan contributions or collecting charitable contributions.
- You can also consider post-year strategies, such as contributing to a personal retirement account or health savings account.
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With about a month left until 2023, experts say there’s still time to reduce taxes or increase refunds.
Generally, you can expect a refund from the federal government if you overpay or withhold more than the total amount owed during the year. The average refund for 2023 was $3,054 as of Oct. 27. According to the I.R.S..
“Start organizing your tax documents now,” says certified financial planner Akeiba Ellis, co-founder and financial coach of The Bemused in the Boston area. “Waiting until April could lead to unnecessary stress.”
Year-end planning details
Here, we look at in-depth coverage of what to do financially as the end of the year approaches.
According to financial experts, there are some tax strategies to consider before the calendar ends.
This is especially important if you are not making the most of your employer matching funds or could benefit from a reduction in your taxable income.
Co-founder and Financial Coach of The Bemused
“This is especially important if you are not making the most of your employer matching funds or could benefit from a reduction in your taxable income,” Ellis said.
If you adjust your 401(k) plan deferral now, the changes will take effect before you receive your year-end bonus, potentially reducing your returns and inflating your retirement savings.
Taxpayers claim either the standard deduction or itemized deductions, whichever is greater, with the latter category including state and local taxes, as well as charitable and medical deductions.
In 2018, the Tax Cuts and Jobs Act nearly doubled the standard deduction, significantly reducing the number of itemized filers. The standard deduction for 2023 is $13,850 for a single filer and $27,700 for a married couple filing jointly.
“Many of our wealthy clients no longer itemize their deductions,” said Robert Dietz, national director of tax research at Bernstein Private Wealth Management in Minneapolis.
One solution, a “blanket deduction,” aims to accelerate expenditures such as charitable contributions into a single year and exceed the standard deduction threshold, Dietz said.
Non-elective medical expenses can be difficult to control, but collecting charitable donations is common, especially in so-called donor-advised funds, which have upfront deductions and include things like a charity checkbook for future gifts. play a role.
Before completing a year-end strategy to increase your income, you need to make sure you can afford to “raise your income taxes,” Dietz says. This typically includes tax projections to see how much more income your current household could receive.
For example, you can use this strategy when weighing a year-end partial Roth individual retirement account conversion or required minimum distributions from an inherited IRA, he said.
It’s also wise to know your tax bracket when deciding whether to defer income such as bonuses or capital gains to 2024.
Although most tax planning must be completed by December 31st, there are several ways to reduce your tax bill between January 1st and the federal tax deadline. If you don’t have enough money, you might wait until early 2024.
- Pre-tax IRA contributions: You can still make pre-tax IRA contributions of up to $6,500 ($7,500 if you’re 50 or older) in 2023 and may qualify for a deduction. However, first he needs to check his eligibility for IRA tax relief.
- Health Savings Account Contributions: You can also save up to $3,850 ($7,750 for a family plan) in a health savings account, giving you a “triple threat” of tax relief, says CPA and Enrolled Agent in Alameda, Calif. As Louise Cochrane points out. You can claim advance deductions, tax-free accretions, and tax-free withdrawals for eligible medical expenses.