While it may feel premature to consider your 2023 taxes, now that the year is wrapping up, it’s an ideal moment to examine your finances and make strategic decisions that could reduce your tax burden in April.
Don’t wait until the last minute for year-end tax planning. You can begin taking thoughtful steps now. In this blog series, we’ll outline eight important actions you can take in this final quarter of the year to cut down on your 2023 taxes.
Let’s get started.
Contribute to Your HSA (Health Savings Account)
A Health Savings Account (HSA) is a useful tool for controlling healthcare expenses and lowering your taxable income. It lets you save money before taxes for future medical costs. The money you put in is tax-deductible, and any earnings grow tax-free. To get the most out of this account, think about putting in the maximum before the year is up.
In 2023, if you have individual health insurance, you can put in up to $3,850, or $7,750 for family coverage. If you’re 55 or older, you can add an extra $1,000. Bumping up your HSA contributions not only lowers your taxable income now, but it also builds a helpful fund for future healthcare costs.
If your employer provides an HSA, they might make a yearly contribution. If you’re self-employed or don’t have access to an employer’s HSA, you can easily set up your own through many financial institutions.
What’s great is that the funds you put into your HSA don’t expire and can be used in the years ahead. However, remember that if you’ve withdrawn money for a medical expense this year, it’ll be considered as income on your tax return for this year.
Contribute to a 529 College Fund
If you’re aiming to support your children or grandchildren through college, starting or adding to a 529 college savings plan is a smart financial move. These plans come with a tax benefit, as contributions can be deducted on the state level. While federal deductions aren’t available, any profits in the account grow tax-free if used for qualified education expenses.
In 2023, you can put in as much as you’d like to a 529 plan, but contributions exceeding $17,000 annually ($32,000 for married couples filing jointly) might be subject to gift tax. Nevertheless, investing now allows you to make the most of potential state tax deductions while investing in your loved ones’ future education.
And if you’re unsure about college, funds in a 529 account can also be used for trade school, or elementary and high school tuition.
Adjust Your Tax Withholdings
If you’re an employee, your W-4 form decides how much income tax is taken out of your paycheck every month. It’s crucial to review and possibly update this info, especially after significant life events like marriage, divorce, having a child, or income changes.
Making adjustments to your tax withholdings can prevent you from overpaying taxes, giving you more money in hand. Neglecting to update your W-4 could lead to underpaying taxes, meaning you might owe money instead of getting a refund during tax season, along with potential penalties. You can consult a tax professional or use the IRS’s online withholding calculator for guidance.
If you’re a 1099-independent contractor or a business owner, it’s wise to consult a tax professional to assess if any changes are needed in your business setup or to set up retirement accounts before the year ends. If you’re unsure about what to bring or what questions to ask, feel free to reach out to us.
Schedule Medical Procedures Strategically
Medical costs can add up fast, and for the 2023 tax year, you can deduct qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI). To get the most out of this deduction, think about scheduling necessary medical procedures before the year wraps up.
While you can’t plan for every medical need, if you know you’ll have an elective surgery, try to book it before December 31. Likewise, if you’ve reached your out-of-pocket limits for health or dental insurance, now’s a good time to get your family in for any remaining check-ups or follow-up procedures.
If you don’t expect to meet the threshold for medical deductions this year but foresee a significant medical bill (like a birth or surgery) next year, consider postponing any non-urgent medical work until January to make the most of the medical expenses deduction in the following year.
Remember to keep thorough records of your medical expenses, including bills, receipts, and insurance statements, to support your deduction claims.
Looking Out for Your Family and Your Finances
Reviewing your finances to find tax-saving opportunities isn’t just about ending the year on a high note or preparing for tax season. It’s about making smart decisions that set you up for success now and provide security and support for your loved ones in the future.
To ensure your family’s well-being, no matter what lies ahead, schedule a free call by clicking the button below. We’d be happy to discuss how we assist our clients in crafting a plan that safeguards their assets and their family’s future for years to come.
And remember to stay tuned for part two of our year-end tax planning series, where we’ll delve into even more strategies to help you keep more of your money where it belongs – in your pocket.
At Cheever Law, APC, 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, starting with a valuable and educational Life & Legacy Planning Session. This will allow you to get more financially organized and make the best choices for the people you love. If you have already completed your estate plan, we will review that plan at your Life & Legacy Planning Session to ensure that it will work the way you intend and address any holes or gaps that may be present if circumstances have changed since you executed your plan.
To learn more about our one-of-a-kind systems and services, contact us or schedule a no-obligation 15-minute introductory phone call today.