Year-End Tax Planning: Actions for 2023 Savings

As we approach the final month of 2023, it's crucial to focus on year-end tax planning strategies to minimize your tax liability. Here are eight actionable steps to optimize your tax situation:

• Maximize Your Health Savings Account (HSA) Contributions: HSAs offer a triple tax advantage: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. For 2023, contribute up to $3,650 for individual coverage or $7,300 for family coverage, plus an additional $1,000 if you're 55 or older. Employer contributions, if available, further enhance this benefit.

• Invest in a 529 College Savings Plan: 529 plans are excellent for saving for education expenses, with tax-free growth and state-level tax deductions. Contribution limits are generous, though amounts over $16,000 per individual per year could trigger gift tax implications.

 

• Adjust Your Tax Withholdings and/or Estimated Payments: Review and update your W-4 withholdings to reflect any life changes. For self-employed individuals or business owners, consult a tax professional to optimize your tax payments and business structure.

 

• Plan Medical Expenses Strategically: To claim a deduction for medical expenses, they must exceed 7.5% of your AGI. If you anticipate significant medical expenses, schedule procedures strategically to maximize this deduction.

 

• Make Charitable Contributions: If your itemized deductions are near the standard deduction threshold, charitable donations can tip the balance, providing tax benefits while supporting causes you care about. Keep meticulous records of all donations.

 

• Implement Tax-Loss Harvesting: Offset capital gains by selling underperforming investments. This can reduce your taxable income, but be mindful of the rules and limits.

 

• Prepay Your January Mortgage Payment: Paying your January mortgage payment in December can increase your mortgage interest deduction for the current year. Confirm with your lender how this payment will be applied.

 

• Max Out Your IRA Contributions: Contribute up to $6,500 to your IRA or Roth IRA (or $7,500 if you’re 50 or older). Traditional IRA contributions may reduce your taxable income, while Roth IRAs offer tax-free withdrawals in retirement.

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These proactive steps can significantly impact your tax bill for 2023. By acting now, you can position yourself for a more favorable tax outcome and a stronger financial future.