As the year ends, individuals are presented with a prime opportunity to optimize their financial situation by employing strategic measures that can reduce their tax bill or bolster their refund. Optima Tax Relief outlines several insightful ways to navigate the year-end tax landscape and make the most of available opportunities.
Table of Contents
Contribute to Retirement Accounts
Maximizing contributions to retirement accounts such as 401(k)s or IRAs can significantly reduce taxable income. The maximum amount you can contribute to a 401(k) in 2023 is $22,500. If you are age 50 or older, you can contribute an additional $7,500. However, at the very least, experts highly recommend maxing out your employer match. Contributions made before the end of the year may be deductible, providing both immediate tax benefits and long-term savings.
Consider Charitable Contributions
Making charitable contributions before year-end can yield deductions on the current year’s tax return. If you are a heavy giver, experts recommend donation bunching. This involves “bunching” two years of charitable donations into one year and itemizing your deductions. Then, next year you can take the standard deduction. Just be sure that these donations are made to qualified charitable organizations and keep proper documentation for tax purposes.
Know Your Tax Bracket
Most taxpayers probably know what tax rate they pay. However, it is especially important to know the income levels associated with your rate. This can help you determine how much more money you can earn before being bumped into a higher tax bracket. For example, a single filer in 2023 can earn between $44,726 and $95,375 in taxable income before they are forced to pay a higher tax rate. These thresholds change each year so taxpayers should always be mindful of their bracket. This way, they can be aware if they need to defer income or contribute to retirement accounts to avoid being pushed into a higher tax bracket.
Contribute to Tax-Advantaged Accounts
Contributing to tax-advantaged accounts is another great way to reduce your tax liability. In many cases, you can even continue to contribute after the end of the year up to the April tax deadline. For example, contributions to HSAs are tax-deductible and can be used for qualified medical expenses. Maximizing contributions to an HSA before year-end provides a dual benefit of lowering taxable income and creating a tax-advantaged health savings fund. FSAs also allow employees to contribute pre-tax dollars to cover qualified medical expenses. If you qualify for IRA contributions, you can contribute up to $6,500 in pre-tax dollars. If you are age 50 or older, you can contribute an additional $1,000.
Conclusion
As the year ends, individuals can proactively manage their tax situation by implementing these strategic measures. From optimizing retirement contributions to leveraging tax-advantaged accounts and exploring available credits, thoughtful planning can lead to a reduced tax bill or an enhanced refund. Consulting with a tax professional is recommended to tailor these strategies to individual financial circumstances and ensure compliance with current tax regulations. By taking advantage of these opportunities, taxpayers can navigate year-end tax planning with confidence and financial savvy.
