Rosalind Evans
As the end of the year rapidly approaches, taxpayers are looking for ways to minimize their 2023 tax liabilities. With a few weeks remaining, there are still several effective strategies that individuals can employ to reduce their tax burden both this year and in the future.
Fund Your Nest Egg
A significant way to reduce your taxable income is by funding retirement accounts. “Funding retirement accounts can help defer taxable income and grow your nest egg,” explains a financial expert. The maximum contribution for 2023 is $22,500, with an additional $7,500 allowed for individuals over 50. Contributing to a 401(k) and an IRA in the same year is also possible. For self-employed people, the deadline for funding a solo 401(k) extends until the due date of the 2023 return, including extensions. Additionally, the contribution deadline for IRAs is April 15, 2024.
Harvest Your Losses
Another strategy involves reviewing your stock portfolio for any losses. This process, known as tax-loss harvesting, can offset gains you may have realized from other investments. “Selling losing stocks can be beneficial for tax purposes,” notes senior contributor William Baldwin. This strategy requires careful planning, as losses must first offset gains of the same kind, but it can be an effective way to manage taxable income.
Do Something Good
Charitable contributions also offer a dual benefit of supporting worthy causes while reducing taxable income. Donating appreciated property like stock can be particularly advantageous as it allows the donor to avoid capital gains tax and claim a deduction for the fair market value. For older taxpayers, especially those aged 70 1/2 or above, Qualifying Charitable Distributions (QCDs) offer a tax-free way to donate directly from an IRA.
Borrow From Family Members
Intrafamily loans present an alternative method for managing finances while preserving tax breaks. Loans from family members can be used to pay down debts like student loans or mortgages, with interest rates often lower than commercial rates. “An intrafamily loan can allow you to reduce the interest rate while preserving any associated tax breaks,” says a financial planner.
Commit To Being More Energy Efficient
Investing in energy-efficient upgrades or purchasing clean vehicles can also yield tax benefits. The government offers various credits for these environmentally friendly choices, including a clean vehicle tax credit for new EVs and FCVs and credits for home improvements like installing energy-efficient windows or solar panels.
In closing, while time is short, there is still time to make smart financial moves that can reduce your tax bill for 2023 and beyond. From maximizing retirement contributions to strategic giving and energy-efficient investments, these strategies provide opportunities for savings. As always, it’s wise to start planning now for next year’s taxes to ensure you’re in the best possible position.
