Last week we looked at four different ways to lower your tax liability for 2023, from adjusting your tax withholding to strategically planning your medical procedures. In this week’s blog, we discuss four more tax-saving methods you can use right now to owe fewer taxes come April 2024.
If you missed part 1 of this series, be sure to read it so you don’t miss out on these money-saving techniques.
Make Charitable Gifts
Giving back to your community or supporting causes you care about is not only rewarding but can also provide tax benefits if your family’s tax deductions are close to exceeding the standard tax deduction.
The standard deduction for 2023 is $12,950 for individuals and $25,900 for married couples filing jointly. Remember that the total of your itemized deductions, including charitable contributions, must exceed the standard deduction for your filing status to provide a tax benefit.
If you’re nearing the top of the standard deduction threshold, this year may be a great time to contribute to a charitable organization that is important to you. Doing so will help support a good cause and allow you to make itemized deductions for an extra reduction in your taxable income for the year.
If you make any charitable donations, keep detailed records of your donations, including receipts and acknowledgments from the charities. If you donate non-cash items (such as clothing or household goods), make sure to document their fair market value.
If you aren’t sure how to document your donations or aren’t sure if a charitable donation will be advantageous to you this year, be sure to discuss this with your tax professional.
Consider Tax-Loss Harvesting
Tax-loss harvesting is a strategy designed to offset capital gains by selling underperforming investments. This technique can help you minimize the taxes you owe on your investment gains.
The first step is to identify investments in your portfolio that have experienced losses and then sell those investments to realize the losses. After all, you haven’t actually lost or gained capital until the money enters or leaves your portfolio.
By selling underperforming investments, you can now use the lost capital to offset any capital gains from other investments that are doing well. Losses can be used to offset up to $1,500 for individuals filing separately or up to $3,000 for couples filing jointly.
It's important to remember that there are rules and limitations when it comes to tax-loss harvesting. Consult with a financial advisor or tax professional to ensure you execute this strategy correctly and in a way that aligns with your overall financial goals.
Pay Your January Mortgage Payment in December
If you're a homeowner with a mortgage, making your January mortgage payment in December can provide a valuable tax advantage. Mortgage interest is deductible on your income tax return, and prepaying your January mortgage payment in December gives you an extra month of interest to deduct on your 2023 taxes.
However, before implementing this strategy, check with your mortgage lender to ensure that they apply the payment correctly. Some lenders may automatically apply extra payments to your principal balance rather than counting them as interest for the next month.
Max Out Your IRA (Individual Retirement Account) or Roth IRA
Retirement planning is crucial for long-term financial security, and IRAs are excellent vehicles for saving for your golden years. For the 2023 tax year, the maximum contribution limit for both traditional and Roth IRAs is $6,500, with an additional $1,000 allowed for those aged 50 or older. It's essential to understand the differences between these two types of IRAs to choose the one that suits your needs best.
Traditional IRA contributions may be tax-deductible, potentially reducing your taxable income for the year. However, withdrawals in retirement are subject to taxation.
Roth IRA contributions are made with after-tax dollars, so they don't provide an immediate tax deduction. However, qualified withdrawals in retirement are entirely tax-free.
By maximizing your contributions to your IRA of choice, you can secure a more comfortable retirement and possibly reduce your tax liability for this year.
The Foundation of Life-Long Support and Security
Proactive year-end tax planning can significantly impact your financial well-being. By implementing these eight tax-saving strategies, you may be able to keep more money in the bank and take a step toward a brighter financial future.
But good money management is only one part of the equation for a life you love and a legacy that will guide and support your family for generations to come.
Making the best strategic decisions to protect your family’s health, finances, and happiness is equally, if not more, important. If you want to make sure that both your financial and personal life are in order today and structured to give your family the best support possible tomorrow, give us a call.
We would be honored to help you protect everything you own and everyone you love through our heart-centered estate planning services.
This article is a service of a Personal Family Lawyer® Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Wealth & Legacy Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Wealth & Legacy Planning™ Session.
Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.