By Donald L. Butler, CISA, CDPSE, PMP, President & CEO at Butler Squared Consulting, LLC
It’s never too early to start preparing your taxes. Dive into a treasure trove of expert tips designed to help you reduce your tax bill and maximize your savings, guiding you through the complex maze of taxation with ease. Think of this guide as your map to navigate the intricate world of taxation, allowing you to keep more money in your pocket. We’ll explore savvy financial moves that can turn your tax game into a winning strategy. From boosting your IRA contributions to making the most of losses, let’s demystify taxes and turn them to your advantage. Here are five effective ways to reduce your taxable income.
- Maximize Your IRA Contributions
Here’s a clever strategy: reduce your taxable income by contributing to a traditional IRA. If you make the contribution by April 15, you’re in luck. For the 2023 tax year, you can contribute up to $6,500, or $7,500 if you’re aged 50 or older. If you’re married, your spouse can also make contributions, potentially doubling the deduction to $13,000 or $15,000 if both of you are over 50.
Keep in mind that if you or your spouse have a workplace retirement plan, there may be specific rules to follow. However, if you don’t have such a plan or if your income is within the allowed limits, this is a fantastic way to lower your taxable income. Be sure to inform your IRA administrator that you’re contributing for 2023 when filing your taxes.
Pro Tip: If you’re not already making automatic contributions to a retirement plan, start now. Small, consistent contributions can grow significantly over time.
- Non-Cash Charitable Donations
Donating items like clothing and household goods to charities can give you a substantial tax deduction. Don’t let those bags of old clothes in your closet go to waste! For donations over $250, ensure you get a receipt from the charity to substantiate your deduction. At Butler Squared Consulting, we can assist you in tracking and valuing your charitable contributions. Many people donate items worth a significant amount – don’t miss out on those deductions.
- Deduct Real Estate Taxes on Additional Properties
While many know about deducting real estate taxes on their primary home, you can also deduct taxes on other properties you own. This includes vacation homes and even land intended for future use, as long as the total deductions do not exceed $10,000. This can significantly reduce your taxable income.
- Transform Investment Losses into Tax Advantages
Did you sell investments at a loss last year? If your losses surpassed your gains, you can deduct up to $3,000 of those losses against your ordinary income. Additionally, you can carry forward any remaining losses to offset future gains, potentially providing tax relief for years to come.
- Contribute to a Health Savings Account (HSA)
Think of an HSA as an IRA for health expenses. You can contribute up to $3,850 for individual coverage or $7,750 for family coverage to an HSA, reducing your taxable income for 2023. If you’re 55 or older, you can add an extra $1,000 as a catch-up contribution.
To qualify, you need to be enrolled in a high-deductible health plan. This is an excellent way to take advantage of medical expense deductions, especially if you don’t itemize or if your medical expenses are below the 7.5% adjusted gross income threshold.
So there you have it – five strategies to help you save on taxes and keep more of your hard-earned money. Implement these tips and look forward to a more favorable tax season next year. For more financial tips and expert advice – visit our blog. Happy saving!