Accounting & Tax Tips
December 4, 2023

Optimize Your 2023 Taxes With These End-Of-Year Tips

The end of the year is approaching, and tax season is just a month away! By getting organized now and understanding important tax dates and planning strategies, you can set yourself up for a painless tax season in 2024.

Important Upcoming Tax Dates

December 31, 2023

The final day to action any of the tax moves mentioned below for the year 2023.

January 15, 2024

For those with self-employment income or who pay quarterly estimated taxes, the final estimated tax payment for 2023 is due.

End-of-Year Tax Strategies

1. Organize Your Tax Documentation

Ensure all your expected income documents, including any W2s, 1099s, Schedule K-1s, or other income-related documents, are in order. Remember that most of these will be sent out at the start of 2024 for the 2023 tax year.

2. Defer Extra Income

To reduce your tax liability, consider delaying receipt of additional income if you believe you’ll be in the same or a lower tax bracket in the following year.

3. Increase Your Charitable Donations

Maximize your deductions by making additional donations to verified non-profit organizations before year-end. For 2023, you may opt for non-cash donations as well, such as stock or personal items like clothing and home goods, using fair market value. Be sure to keep receipts on file for any charitable donations.

4. Bundle Deductions

A proven approach to reducing federal income tax liability is to capitalize on available deductions. When employing this tax strategy for 2023, it’s important to determine whether itemizing deductions or taking the standard deduction will have the most significant impact in lowering your federal taxes.

For the 2023 tax year, the standard deduction amounts are as follows:

  • Single taxpayers and married taxpayers filing separately: $13,850
  • Married couples filing jointly: $27,700
  • Head of households: $20,800

These deduction amounts reflect changes in the tax law designed to adjust for inflation.

Opting for the standard deduction might be less complicated, but itemizing your deductions can potentially result in greater tax savings. Bear in mind, you’ll need to retain supporting documentation, such as receipts, bank statements, and medical bills, to substantiate your itemized deductions.

Examples of expenses eligible for itemizing deductions include:

  • Medical and dental expenses, including prescription medication (exceeding 7.5% of your AGI) and home improvements for medical purposes
  • Deductible taxes
  • Mortgage interest on loans up to $750,000
  • Investment interest expenses tied to net investment income
  • Charitable contributions
  • Casualty, disaster, and theft losses
  • State and local income, sales, and personal property taxes up to $10,000
  • Other miscellaneous deductions, such as gambling losses

To maximize itemized deductions, consider bundling certain expenses. For instance, instead of making an annual donation to a nonprofit organization, you might consolidate the donations into a 2-, 3-, or 5-year bundled payment. This larger, one-time bundled donation, coupled with other itemized deductions, might push you above the threshold for the standard deduction.

5. Consider Energy Efficient Home Improvement Deductions

If you made energy-efficient additions or renovations to your home after January 1, 2023 may qualify for a tax credit up to $3,200.

The credit equals 30% of certain qualified expenses, including: qualified energy efficiency improvements installed during the year, residential energy property expenses, and home energy audits.

Keep in mind that you must claim the credit for the tax year when the energy-efficient system/s was installed, not just purchased.

6. Inflation Reduction Act Credits

In addition to qualified home energy improvements referenced above, there are a number of energy-related credits and deductions for related to the Inflation Reduction Act of 2022. This includes clean vehicle credits for individuals and for businesses — advanced manufacturing investment and production credits, clean electricity investment and production credits, clean hydrogen credit, research and development tax credit, and clean commercial vehicle credits, to name a few.

7. Max Out Your Tax-Deferred Accounts For 2023

Contribute the maximum allowed amount to your tax-deferred retirement accounts, such as 401(k) plans, to lower your tax liability. Also, consider maximizing contributions to employer-based Health Savings Account (HSA) or Flexible Spending Account (FSA).

If you’re self-employed or have secondary freelance income, you may want to consider a solo 401(k) plan as a tax strategy. To take advantage of this option for 2023 taxes, the plan must be opened by December 31, 2023. You have until April 15, 2024 (or the extension deadline of your tax return) to contribute up to $22,500 ($27,000 if you’re 50 or older) to the plan and take advantage of the deduction for 2023. You can also make a profit-sharing contribution of up to 25% of your compensation.

Another option is opening a Simplified Employee Pension (SEP) IRA. We advise speaking with a Wendroff & Associates Tax Adviser to review the nuances of your business situation when considering a SEP IRA.

8. Sell Losing Investments

For investments that didn’t improve your financial status, implement a tax loss harvesting strategy by selling losing stocks, bonds, shares, or cryptocurrencies to offset capital gains made elsewhere. The IRS allows you to offset up to $3,000 in losses against your other income in a year when your capital losses outweigh gains.

Now is the time to get organized for a stress-free tax-time in 2024. To set up a Free Consultation to discuss your tax prep needs, please click the button below to schedule a time that works best for you.

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