How To Save on Taxes in 2023
This year, 2023, is all about maximizing your tax refund. And although it’s only the first month of the year, your small efforts today could pay off big later. Here are some ways to save on taxes in 2023.
Double-Check Your Paycheck for Tax Withholding
Employers withhold money from employees’ paychecks because of the US income tax’s “pay as you go” model. This is also the reason why freelancers have to pay estimated taxes quarterly.
Double-check your paycheck for tax withholding, or you’ll risk paying the penalty at tax time. The company will identify the amount withheld by your W-4 form.
Increase Retirement Account Contributions
Most plans require you to contribute to the traditional IRA, 401(k) or 403(b) using pre-tax dollars. This workplace retirement account lets you defer paying income tax on contributions reaching $22,500 in 2023.
Once you reach 50, you can make catch-up contributions and defer taxes on an additional $7,500 in your 401(k) plans in 2023.
Sell Loser Stocks for Capital Gains
The advantage of a bear market is that your potential stock losses offer an excellent opportunity to practice “tax loss harvesting.” Remember that capital gains may involve income from real estate, cars, furnishings, and other properties.
Say you made a profit on real estate last year (2022). However, you lost a lot of money investing in a struggling stock. Try selling your stocks and subtracting the financial loss from your capital gains.
Add to 529 College Savings
You can use your 529 plan to reduce your taxable estate. In fact, last 2022, 529 plan deposits of up to $16,000 per individual qualified for the annual gift tax exclusion. Aim for a contribution of $16,000-$80,000 to maximize this benefit.
Make Your Home More Energy-Efficient
Did you know there are significant incentives for homeowners with “green” homes? The American Recovery and Reinvestment Act of 2009 even tripled the amount of tax credits individuals receive.
Start installing a solar energy system in your home to get 22% of the price back. You may also consider wind turbines or geothermal heat pumps.
Contribute to Your Health Savings Account
A health savings account allows you to make contributions that are 100% tax-deductible. That means your contributions can be deducted from your gross income. Another advantage of HSA is that all the interest earned is 100% tax-deferred.
Make Charitable Contributions
Donating to specific non-profit organizations and supporting causes will help you save on taxes. Some can deduct donations up to 50% of their taxable income.
Guarantee that your donation is tax-deductible by searching for the organization on the database of IRS.
Open a Flexible Spending Account
Pre-tax FSA savings encourage you to plan your budget if you have elder care, childcare, and other medical expenses. If you earn $50,000 annually and contribute $2,000 into an FSA account, you would have a benefit of $600 if the tax rate is 30%.
It’s only available as part of the benefits package of an employee. So if your company offers this, make sure to take advantage of it.
