If you are looking for last-minute tax-saving ideas for 2023, we have a few suggestions for you. While the most effective tax planning is done during the year where actions must normally be taken before December 31st, there are still things that can be done before you file your taxes in 2024. Here are some tax savings ideas for 2023 you can still make.
Best Tax-Saving Ideas for 2023 You Can Do Now
One of the easiest tax-saving ideas is to make a contribution to a Traditional IRA for last year. There are some requirements you have to meet in order to do this and take the deduction:
- You must have “earned income”; either W-2 income or self-employment income.
- If you or your spouse (if married) are eligible for a qualified retirement plan through your employer, your adjusted gross income must be under certain limits.
The maximum IRA contribution amount is the lower of your earned income or $6,500 ($7,500 if you are age 50 or older). The deadline for 2023 contributions is April 15, 2024.
Roth IRA Contribution
While contributions to a Roth IRA do not save taxes today, earnings and distributions are tax-free when you pull them out for retirement as long as you’ve held the Roth for at least 5 years and you make qualified distributions. These can make great financial planning strategies for retirement. The contribution limits are the same as the Traditional IRA above, but the income limits before getting phased out are a bit higher. So, if you can’t contribute to a regular IRA, you might qualify for the Roth. The deadline to contribute for 2023 is April 15, 2024.
Back Door Roth IRA
If your income is too high to make a regular contribution to a Roth IRA, it may be possible to implement a strategy known as a “back-door Roth”. The basic idea is you contribute to a traditional IRA, the contribution is nondeductible because your income is too high, and then you convert it to a Roth IRA. It is important to realize this works only if you have no other IRAs, including traditional IRAs, SEP IRAs, or SIMPLE IRAs. Like the IRAs above, the deadline to make the initial contribution for 2023 is April 15, 2024.
The SEP IRA is for employers and self-employed taxpayers and is one of the best tax-saving ideas for small business owners to do after year-end. It is similar to a regular IRA but the amount you can contribute can be much larger, and the deadline is the extended deadline of your tax return. That means you could make these contributions as late as September 15th if you are a corporation, or October 15th if you file your business taxes as a sole proprietor. The maximum contributions are based on the income from your business, and you must include all eligible employees, if any.
The Health Savings Account is a great way to save on taxes for medical expenses. We see many clients miss out on this deduction when they participate in pre-tax deductions through their employer but think they cannot make additional contributions on their own. Check with your HSA custodian to see how much you’ve already contributed for 2023 and plan on making a one-time contribution before April 15, 2024.
You must be covered under a high deductible health plan that is HSA qualified and you can’t have other health coverage including Medicare. The maximum contribution amounts range from $3,850 for self-only coverage to $7,750 for family coverage. If you are aged 55 and older, you can contribute an additional $1,000. When you take distributions from your HSA account, they must be used to cover medical expenses. The deadline for contributions to count toward your 2023 tax return is April 15, 2024.
Please note that if you are no longer eligible for the HSA plan during any part of the year due to loss or change in coverage or starting Medicare, these limits may be less. Be sure to check the maximum before making any final contributions.