Yahoo Finance I’m a Tax Expert: Do These 9 Things Now To Pay Less During Tax Season
Now that we’ve wrapped up 2023, it’s time to get our ducks in a row for 2024. And that means getting on track for tax season, which will be here before you know it. The sooner you get prepared, the better shape you’ll be in when the time comes to file your taxes for the past year.
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Not only does it help to get ready for tax season as early as possible, it also greatly benefits you to know which moves you can make right now to actually pay less come tax time next spring.
For insights here, GOBankingRates consulted Lisa Greene-Lewis, CPA and tax expert at TurboTax, and compiled a list of key tax tips for you to take advantage of before Dec. 31 to possibly get a greater refund and/or reduce your taxes owed.
Maximize Your Retirement
The first thing you should do to reduce your taxable income is to make or boost your contribution to your retirement savings account.
For a 401(k), contributions up to $22,500 ($30,000 for those 50 and older) can be made by Dec. 31, Greene-Lewis said. Traditional IRA contributions of up to $6,500 ($7,500 for those 50 and over) are allowed until the tax deadline.
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“If you are a self-employed filer, a SEP IRA allows contributions up to the lesser of 25% of net self-employment income or $66,000, up until the tax deadline for 2023 for potential deductions,” Greene-Lewis said.
“Also don’t forget that you may be able to get the little-known credit called the saver’s credit up to $1,000 filing single and up to $2,000 married filing jointly just for investing in your retirement.”
The saver’s credit is for people making no more than $36,500 singly or $73,000 for couples, according to the IRS.
Contribute to a Health Savings Account
Health savings accounts enable you to pay for qualified medical expenses with pre-tax income. You can then deduct the contribution if you paid it out of pocket rather than having it withheld from your paycheck.
For 2023, you can contribute up to $3,850 for individual coverage and $7,750 for family coverage. People 55 or older are allowed a $1,000 catchup contribution as well.
Maximize Your Deductions
The IRS lets filers use the standard deduction or itemize your deductions — so be sure and keep track of all qualifying deductions.
The standard deduction is $13,850 for a single filer, $20,800 for head of household and $27,700 for couples.
“But if you have itemized deductions like home mortgage interest and property taxes that are close to the standard deduction,” Greene-Lewis said, “you can donate to your favorite charity by the end of the year and deduct your charitable contributions and boost your itemized deductions over the standard deduction.”
New Baby? Get a Social Security Number
Hey, who said kids don’t contribute to household finances? They’re pretty handy come tax time, but only if they have Social Security numbers.
“Kids are worth valuable deductions and credits, but you need to have their Social Security number in order to claim them,” Greene-Lewis said. “If you had a new baby this year, make sure you get their Social Security number so that you can claim credits for kids like the Child Tax Credit, the Child and Dependent Care Credit, and the Earned Income Tax Credit at tax time.”
Make Energy-Efficient Improvements to Your Home or Automobile
The Inflation Reduction Act includes a slew of new tax provisions, extensions and expansions of tax benefits pertaining to energy efficiency that took effect in 2023. If you’ve been thinking about upgrading your home to be more energy efficient, act now.
“If you have been considering energy-efficient home improvements, the credit amounts have increased to up to $3,200 per year for qualified energy efficient home improvements,” Greene-Lewis said.
Electric vehicles also bring tax credits. A new car can net a credit of up to $7,500 and a used EV can merit a credit of up to $4,000 (but no more than 30% of the sale price).
Greene-Lewis added that there are now income and vehicle price limitations under the new provisions, and that if you are considering any of the energy efficient improvements, you need to make the purchases by Dec. 31.
Harvest Tax Losses
“If you have some losing stock and it’s not performing well, if you sell it, just remember you can use tax loss harvesting and offset those losses against your gains,” Greene-Lewis said. “And then you can offset up to $3,000 of a net loss against your ordinary income like your wages.”
Deduct Casualty Losses
Don’t forget about all of the federally declared disasters that happened in the past year.
“You can deduct your [related] losses as long as you were not reimbursed by your insurance company and you can itemize your deductions,” Greene-Lewis said.
Defer Work Bonuses
You may have worked really hard to earn a year-end bonus — but bonus recipient beware, this little windfall could bump you up into another tax bracket and increase the owed amount. There’s a way to deal with this.
“If your bonus bumps you up to another tax bracket, you may want to consider delaying the extra income until the beginning of next year,” Greene-Lewis said. “If your boss is able to pay you your bonus in January, you will still receive it close to year end but you won’t have to pay taxes on it [until next year].”
Accelerate Deductions and Defer Income
There are a number of tax deductions that are recognized the year you pay them.
“For example,” Greene-Lewis said, “if you own a home, you can deduct your mortgage interest paid, and if you make an extra mortgage payment on December 31, you may be able to claim the additional interest paid as a tax deduction in the tax year paid. This lets you take the tax deduction immediately rather than wait an additional 12 months.
“Before using this strategy, be aware that under tax reform, if you purchased a new home after December 15, 2017, you can deduct the mortgage interest you paid based on a home loan up to $750,000 instead of $1,000,000 for homeowners who purchased before that date.”
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This article originally appeared on GOBankingRates.com: I’m a Tax Expert: Do These 9 Things Now To Pay Less During Tax Season
