As we say goodbye to another year, we say hello to the most critical financial season: tax time. Whether you’re a seasoned pro or shudder at the mere mention of taxes, getting a solid head start on year-end tax preparation can help you minimize your tax bill and maximize a potential return.
For most things related to taxes, any changes made by December 31 of the current year affect the entire fiscal year. So, there’s still time to make an impact on your 2023 taxes before the year’s end.
Let’s review a few strategies for navigating your 2023 taxes now so you can be ready to file come spring.
Defer Income to Next Year
Taxable income is “set” by December 31 of each year.
If you earn any additional income that pushes you into a higher tax bracket before that date, electing to defer payouts until the new year can help you save money on your 2023 taxes.
What kinds of income might affect your tax bracket?
- End-of-year raises or bonuses
- Final payments from clients, if you work for yourself
- Payouts from selling stocks or investment withdrawals
- Capital gains from selling assets
Finalize Contributions to Your 401(k)
Maxing out contributions to a 401(k) or a similar pre-taxed retirement account is a great year-end tax tip for lowering your taxable income.
Maxing out your 401(k) contributions is beneficial if you work for a company that matches your 401(k) contributions. Any additional deposits you make to your 401(k) will increase with an employer match, so take advantage when possible. Consider contacting your HR department for guidance if you’d like to make additional, pre-taxed contributions out of your paycheck before the end of the year.
The nice thing about this benefit is that you have until the tax deadline to do it (in this case, April 15, 2024).
How’s Your HSA Looking?
Like contributing to a pre-taxed 401(k) or IRA account, maxing out the contributions to your Health Saving Account, or HSA, can lower your taxable income and, therefore, what you’ll owe in taxes for the coming year.
Spread the Wealth with Charitable Donations
Giving to charity isn’t just good for the cause you care about or your brownie point counter. Donating to a qualified charitable organization is considered a taxable deduction against your income, especially if you itemize your deductions. While the deductions are not typically the total amount of the gift (usually up to 60%), they can still help lower the amount you may owe to the IRS come April.
If you’re 73 or older, you must start taking money from your IRAs or 401(k) accounts. However, you can donate a portion or all of these required minimum distributions, or RMDs, to qualifying charities. This year-end tax tip is helpful when you want to avoid pushing yourself into a higher tax bracket, saving you money when you file.
Make Tuition Payments Early
If you, your spouse, or your child have a big tuition payment, consider paying it before December 31 so you can take advantage of the American Opportunity Tax Credit, or AOTC, on your 2023 taxes. This tax credit offers a credit of up to $2500 maximum per eligible student. If it takes what you owe in taxes down to zero, you can receive up to 40% of it (or about $1000) as a refund.
Reach Out to an Expert
If things in your financial life have become more complicated, or taxes are not your thing, consider hiring a professional for guidance. As a Trailhead CU member, you can access special deals on tax preparation software like TurboTax® and H&R Block®.
Tax season doesn’t have to be overwhelming. These year-end tax preparation tips can help set yourself up for success so you can get your taxes in on time with as little hassle as possible.