Year-End Last Minute Tax Deduction Tips for 2023
As we approach the end of 2023, it’s a great time to review your financial year. Whether you’ve had financial gains or faced challenges, there are steps you can take to minimize your taxable income. Remember, these actions must be completed before December 31 to affect your 2023 income tax return.
Enhanced Retirement Savings through 401(k) and 403(b) Plans:
Increased Contribution Limits: For 2023, the contribution limit for 401(k) and 403(b) plans has been raised to $22,500 for individuals under 50. This increase allows for greater pre-tax income to be set aside, effectively reducing taxable income for the year.
Catch-up Contributions: Individuals aged 50 and over have the advantage of making catch-up contributions. In 2023, this additional amount is $7,500, increasing the total potential contribution to $30,000. This feature is particularly beneficial for those nearing retirement, offering a chance to bolster their retirement savings.
Charitable Contributions:
Tax Benefits of Donating: Charitable donations remain a viable way to reduce taxable income. Contributions can be in cash or non-cash forms, such as donating goods or securities.
Documentation Requirements: For any donation, obtaining a receipt at the time of donation is crucial. For contributions over $250, the IRS mandates a receipt from the receiving organization. This documentation is essential for tax filing purposes.
Tax-Loss Harvesting Strategy:
Offsetting Capital Gains: This involves selling investments that have lost value to offset gains from other investments. It can be a strategic way to reduce taxes on investment income, especially in a volatile market year.
Consultation with Advisors: Engaging with a financial advisor to implement this strategy is important. They can help identify which investments are best suited for this approach and how it fits into your overall financial plan.
IRA and ROTH IRA Contributions:
2023 Contribution Limits: For IRAs and ROTH IRAs, individuals under 50 can contribute up to $6,500. This allows for tax-deferred growth in traditional IRAs and potentially tax-free growth in ROTH IRAs.
Catch-up Contributions: Those 50 and older can contribute an additional $1,000, making their total limit $7,500. This opportunity is crucial for individuals who are looking to increase their retirement savings later in their careers.
Medical Expenses Deduction:
Deductible Expenses: Unreimbursed medical expenses can be deducted when they exceed a certain percentage of your adjusted gross income. These expenses can include surgeries, dental work, and some long-term care insurance premiums.
Planning for Procedures: If you have been postponing medical procedures, scheduling them before the year-end can increase your deductible expenses for the year, leading to potential tax savings.
Each of these areas offers unique opportunities and challenges, and their applicability can vary greatly depending on individual financial situations. It is always recommended to seek personalized advice from financial professionals to understand how these strategies can specifically benefit your tax scenario.
It’s always wise to consult a tax expert to verify what deductions or credits apply to your specific situation. Remember, laws and regulations are subject to change, and professional guidance can help ensure compliance and minimize risk. The opinions in this article do not constitute legal or financial advice.
At Fortifi Bank, we pride ourselves on providing our clients with the tools and resources they need to achieve financial success. If you have any questions about how to take advantage of these tax laws, please don’t hesitate to contact us. We are always happy to help.
Meet Megan M. Heintzkill, CFP®, CDFA® – the Director of Financial Planning at Fortifi Bank. As a Certified Financial Planner® and a Certified Divorce Financial Analyst, Megan has the expertise and experience needed to help individuals and families navigate their financial lives. With her extensive knowledge of the financial industry, Megan is dedicated to providing personalized and comprehensive financial planning services to her clients. Contact Megan for a personalized financial plan.
