- Taking a few steps now will ease tax planning and make sure you’re prepared for your 2024 tax bill.
- This is the time to maximize any HSA contributions, and, for most employees who have FSAs, use remaining balances.
- You may have until next April to make contributions to tax-benefited retirement plans, but this is the time to check and plan those contributions.
During November and December, most people anticipate holiday festivities and the fresh start that a new year brings. These months also present the opportunity to ease tax planning – and potentially obtain some tax advantages – well before the April 15 IRS filing date (April 17 for residents of Maine and Massachusetts).
Here are seven steps to consider before the year ends:
- Determine if you’ll be able to itemize on taxes for this year. Single tax filers will be eligible for a standard deduction of $13,850 on 2023 returns; for joint filers, it will be $27,700. The standard deduction is a blanket amount you can subtract from your adjusted gross income (AGI) that thereby reduces your taxable income. Since interest on mortgages of less than $750,000 is no longer deductible, many taxpayers opt to take the standard deduction instead of itemizing. You can review last year’s tax return to get a good idea of your situation. If you purchase tax return software or work with a tax preparer, refer to those sources.
- Collect your data. If you do plan on itemizing, take time now to organize receipts and records. You still have time to request any documentation that is missing.
- Do a dry run. You can find blank tax forms for 2023 at www.IRS.gov, or with your tax return software if you use that. For now, you can do a rough comparison of your 2023 numbers to your 2022 return. If you work with a tax preparer, now is a good time to check in and ask for any input on what you can expect for your tax payment due next April.
- Plan donations to get deductions. You may be able to reduce taxes due by claiming charitable contributions. Make any donation before Dec. 31 to get credit on this year’s taxes. Always be sure to get a receipt for your donation. Along with cash and household items, potential donations include unneeded or unused vehicles, and stocks and investments. Free online tools, such as Goodwill’s Donation Value Guide, can help calculate the value of non-cash donations. Talk with a tax adviser if you are unsure of a donation’s value.
- Maximize benefits from qualified medical plans. If you have a Health Savings Account (HSA), contribute to and fully fund it. Most contributions will be tax-deductible, and withdrawals for qualifying expenses are tax-free. Most states also recognize HSA funds as tax-free, but since there are a few exceptions, it’s a good idea to check with a tax advisor for specifics on your state tax return.
If you have a Flexible Spending Account (FSA), check your balance. Employees who do not use the money in their accounts by the end of the FSA year lose that money (with some FSA-specific extensions). Many FSAs expire at year-end, while others operate on a different calendar year. Check with your employer, then make plans to use the remaining funds for FSA-qualifying expenses. You can use the funds for many types of products and services, ranging from physician appointments to prescription and over-the-counter medications, and daycare and elder-care expenses. Even purchases of hand sanitizer and sunscreen can apply. Go here to get a full list and learn more about FSA-qualifying expenses.
- Add up medical bills. If your medical and dental expenses for 2023 add up to more than 7.5% of your household’s AGI, they may be tax-deductible. If your expenses are close to that amount, consider scheduling other needed care to reach the deduction and minimize after-tax cost. Or if you anticipate next year will bring a costly procedure, postpone elective appointments and group your costs into one tax year to maximize the deduction.
- Contribute to tax-benefited retirement plans. Ask a financial planner how best to invest for your future. Many retirement plan contributions for the 2023 tax year can be made until April 15, 2024, so you still have time to plan.
Winter weather may vary, and no one knows what will come in wrapped holiday packages, but paying taxes is certain. With forethought, it is possible to improve your tax outlook come April – and better your future financial situation.
The blog articles published by Unlock Technologies are available for informational purposes only and not considered legal or financial advice on any subject matter. The blogs should not be used as a substitute for legal or financial advice from a licensed attorney or financial professional. Links in our blog posts to third-party websites are provided as a convenience and are for informational purposes only; they do not constitute an endorsement of any products, services or opinions of the corporation, organization or individual. Unlock Technologies bears no responsibility for the accuracy, legality, or content of external sites or that of subsequent links.