Even though the end of the year has already happened, there are still some ways to reduce your taxes before tax time arrives. If you need to reduce your reportable income even more, here are some ways to still do it.
Contribute to Your Retirement Accounts
If you have an individual retirement account (IRA), you still have time to contribute up to the contribution limits until April 15, 2024, which is $6,500. If you are 50 or older, you can contribute another $1,000, bringing it up to a maximum of $7,500. Traditional IRAs let you claim a tax deduction for your contribution, which reduces your taxes.There are some exceptions as to who can deduct contributions to an IRA.
NerdWallet says you cannot get a deduction if your workplace retirement plan covers you, if you are married and filing jointly, or if you have an adjusted gross income of $136,000 or more.
Forbes says that the income limit is much higher if your spouse has an IRA from an employer and you do not. In that case, the deduction in 2023 will phase out between $218,000 and $228,000.
If you have a Roth IRA or a Roth 401(k), not all contributions to those retirement accounts are tax-deductible. The limits are the same as a traditional IRA or 401(k). Contributions are made after-tax, and you will not get a tax break. This feature allows you to have free growth and make withdrawals in retirement tax-free.
The Internal Revenue Service (
IRS) says contributions to 401(k) accounts are limited to $22,500 if you are younger than 50. People 50 and older can make catch-up contributions of up to an additional $7,500, which brings the total up to $30,000. The same limit also applies to 403(b)s, 457s, and thrift savings accounts. Forbes mentions that employees cannot contribute to a 401(k) after Dec. 31, but they can be made until April 15 to a Roth 401(k).
SIMPLE IRAs have contribution limits of $15,500 in 2023. People 50 or older can contribute an extra $3,500—for a total limit of $19,000.
Contributions to a traditional IRA and a traditional 401(k) can be made for additional tax deductions. The limitations are that you cannot contribute more than the allowable limits even if you have more than one IRA or 401(k) from different employers.
Whenever you contribute to a retirement account (not to Roth accounts), you reduce your taxable income. If you earn $120,000 and 50 or older in 2023 and max out your contribution to a traditional 401(k), you reduce your taxable income to $90,000.
Itemize Your Deductions
Another way to reduce your taxes for 2023 is to get all your receipts together and itemize your deductions. If you have them already organized, it can save you considerable time.You need to determine if your itemized deductions are more than the standard deduction. According to
TurboTax, the deduction for 2023 taxes is $13,850 for singles and married filing separately. Married filing jointly has a standard deduction of $27,700, and heads of household have a deduction of $20,800.
You cannot use this option if your total deductions do not exceed the standard deduction. The only way you will know is to total them up. If they are, you may be able to reduce your taxable income even more. Among other deductions, you should include mortgage interest, medical expenses up to 7.5 percent of your adjusted gross income, and charitable donations.
Contribute to an HSA
Contributions made to a health savings account (HSA) are tax-deductible. You can make them up until tax time. Besides using it for medical purposes, the account can also be used to supplement a retirement plan. When money in the account is used for qualified medical expenses, withdrawals are tax-free, enabling you to save money on health costs. Your contributions continue to build interest from year to year. Penalties apply when money is used for purposes other than medical expenses until you turn 65.If you are single and younger than 55, you can contribute as much as $3,850. People with family coverage can contribute as much as $7,750. Those who are 55 and older can contribute an extra $1,000.
Bankrate says that contributions made by an employer are included in the limit, and you want to avoid going over because of penalties.
If you do not yet have an HSA, you cannot be on Medicare and open one. You will need to have a high deductible health plan (HDHP) before you can sign up. You must make deposits to an HSA about eight months before applying for Medicare, and you cannot make any more once you enroll in Medicare, but you can still make withdrawals. It is because Medicare backdates the payments for six months.
Claim Business Expenses
If you have a business, there are many available tax deductions. Almost any expense connected with your business is tax deductible, but you must report it on form Schedule C. Accurate records need to be kept.Deductions can include costs for office furniture, equipment and supplies, staff salaries, rental space, vehicle expenses, supplies, cell phone and Internet, health insurance, travel expenses, hotels, meals, and much more. If you have a home office used exclusively for your business, you can deduct a proportion (square footage) of your mortgage, home insurance, remodeling costs, utilities, and more.
More opportunities to reduce your taxes—even after the end of the calendar year, can be obtained by talking to a financial advisor, tax agent, or estate planning attorney. Do not wait until the last minute because some tax reduction steps cannot be performed at the last minute.
The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
