Even though we are past December 31, 2023, there are still some steps you can take by April 15, 2024, to save on last year’s taxes. Here are 10 last-minute tips to save more of your money now and in the years ahead.
10. Contribute to Tax-Advantaged Accounts
You can contribute to an IRA up until the tax filing deadline of April 15, 2024, for the tax year 2023. You can contribute up to $22,500 in total combined traditional and Roth contributions. However, if you’re age 50 or over, you can make an additional catch-up contribution of $7,500.
9. Use Investment Losses as Tax Gains
There’s an upside if you’ve lost money on your investments this year. You can do what’s called tax-loss harvesting. You can sell your investments that are down and replace them with reasonably similar investments. Then you can use your losses to offset realized investment gains, plus up to $3000 of regular income annually.
8. Bunch Your Charitable Contributions
Bunching charitable contributions is when you concentrate your charitable deductions in a single year, then skip the following year or even several years. Although you likely wouldn’t claim charitable deductions the following year, you’d still qualify for the standard deduction. Be aware: Deducting charitable contributions may be subject to AGI limits depending on the receiving charity and what was donated.
7. Donate Your Appreciated Assets
Any appreciated assets that have been held for longer than one year can be donated to a qualified public charity. You can then deduct the fair market value of the asset without having to pay any capital gains tax. Keep in mind, that the donation is subject to a 30% adjusted gross income (AGI) limitation.
6. Defer Some of Your Income
This is a tactic that can only be applied up until December 31. If you have any side income, such as freelance or gig work, consider delaying billing for your services until early next year. This is a good tactic when you expect lower additional income the following year to balance out your tax burden.
5. Take Advantage of Education Tax Breaks
There are a few educational tax breaks if you qualify. The American Opportunity Tax Credit provides a dollar-for-dollar credit on a portion of qualified education expenses paid for an eligible student for the first 4 years of higher education. Some states also provide a state income tax deduction on a portion of contributions made to a 529 college savings account.
4. Take Advantage of Cash and Property Contributions
You can deduct up to 60% of your AGI donated as cash or property. The IRS will require documentation, such as a qualified appraisal, in determining the fair market value of the donated items over $5000. Exceptions include personal property owned less than one year, and publicly traded stock and mutual funds.
3. Set Up and Donate to a Health Savings Account (HSA)
Until April 15, 2024, you can set up and fund a health savings account (HSA) for tax year 2023. The policy must have a deductible of at least $1,500 for individual coverage or $3,000 for family coverage. Contribution limits are $3,850 for individuals or $7,750 for families. If you were 55+ in 2023, you can contribute an additional $1,000.
Read More: 10 Things You Should Already Know About Investing
2. Avoid RMD Taxes and Penalties by Donating
Individuals 73 or older must take their required minimum distribution (RMD) by December 31 from traditional IRAs, 401(k)s, etc. Missing it can result in a penalty of 25 percent of the RMD. If you don’t need it, consider donating it. You can’t deduct the donation, but you’ll meet your withdrawal requirement, and avoid taxes or penalties on the RMD.
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1. File an Extension if Necessary
If you need more time to file your taxes, file an extension with the IRS, (or have your tax preparer file one). Extensions are automatic within the law. The extension will give you until October 15 to file your return. Remember, an extension grants extra time to file, but any taxes you owe are still due by April 15.
Read More: How Do IRS Tax Relief Programs Work?
