Tax Strategies for 2023
If you’re like me, you’re pretty happy when tax day comes around — because it means one thing: Your hard-earned money is finally yours again. But if you’ve been reading up on what’s going on in the world of taxes, then you know that the good times may not last long. The government has a lot of tricks up its sleeve to make sure that everyone pays their fair share — and some of them will affect your wallet directly. So let me help guide your way through the maze of IRS regulations and keep as much money as possible in your pocket this year (and next year).
The first step to saving money on taxes is to open a 401k account. A 401k is a retirement savings plan that allows employees to contribute pre-tax earnings into the account and invest it. The money in your 401k grows tax-free until you withdraw it, which means that you don’t pay any capital gains or income taxes on interest or dividends generated by investments held inside the account. This can be extremely beneficial if you’re looking for ways to lower your tax bill because it lowers how much money goes directly into Uncle Sam’s pocket!
The next step is opening an IRA (individual retirement account). An IRA allows individuals who aren’t covered by other types of plans like 401(k)s or 403(b)s (which are similar but have some key differences) make annual contributions up until age 70 1/2 without facing penalties from Uncle Sam; however, there are still rules about how much money can be contributed each year based on income level – see chart below for details! It’s also important to note here that Roth IRAs allow users access funds earlier than traditional IRAs do without incurring penalties due to age restrictions imposed by other types of accounts; however unlike regular IRAs where withdrawals must occur after reaching 59 1/2 years old before being taxed as ordinary income rather than capital gains which could potentially save thousands per year depending on circumstances – see chart below again.”
Charitable giving is a great way to support your favorite causes and help others while helping yourself. If you’re thinking about making a charitable donation, here are some tips on how to maximize the amount of money that goes to charity and the tax deduction that comes out of it:
Donate cash or property rather than stocks or bonds. Your donations may be tax deductible only if they are made in cash, but not if they are made by selling assets at their current market value. If this is true for you, consider donating stock instead of selling it so that you can avoid paying capital gains taxes on any profits from selling the shares.
Donate as much as possible up front rather than spreading out payments over several years–but don’t go overboard! You want your donations to be meaningful but not overwhelming for both parties involved (you and whoever gets them). This means considering what kind of impact each type has on people around us; think about whether an organization will be able to use extra funds immediately or if waiting until next year would make more sense based where things stand now versus then (e.g., earthquake relief vs cancer research).
Retirement account contributions
Contributions to a 401(k), IRA and Roth are tax-deductible. Contributions to a traditional IRA are deductible on your federal income tax return, but not on your state income tax return. Roth IRAs are funded with after-tax dollars, meaning you don’t get an upfront deduction for your contribution but can withdraw funds tax-free after age 59 1/2 if you’ve had the account at least five years and meet other conditions (see IRS Publication 590-A). Earnings grow in these accounts without being taxed until withdrawn.
For example: If you put $5,500 into a 401(k) for yourself this year and earn an average 8% per year over the next decade (which would be above average), then by 2023 your invested balance will be about $26,000–even though only $5,500 was ever contributed!
Home and mortgage tax deductions
As a homeowner, you may be able to deduct the interest on your mortgage as an itemized deduction. Your deduction is limited to the amount of interest paid during the year that exceeds investment income earned by all rental properties (if any) held for personal use. The limit on this deduction is $750K for married couples filing jointly or $375K for single filers. For more information about this deduction, visit IRS Publication 936: Home Mortgage Interest Deduction at wwwirsgov/pub/irs-pdf/p936.pdf
Business interest deductions
You can deduct the interest you pay on business loans. However, there are some limitations on what types of loans qualify and how much interest you can deduct.
For example, if your business uses a loan to buy equipment, land or buildings (called “investment property”), any interest paid will be deductible as an ordinary expense. If your business uses a loan to buy vehicles for use in its trade or business–including cars and trucks–the amount of allowable depreciation for these vehicles must be reduced by any interest that would have been paid had the vehicle been financed by an outside lender rather than by the corporation.
On top of this deduction limitation is another twist: If an S corporation pays more than $50K in total dividends during its tax year (2023), then all deductions related to those dividends including bad debts must be recaptured at their full value when calculating taxable income for 2023.*
Medical expenses and itemized deductions
Medical expenses are a common way to reduce your taxable income. You can deduct the cost of qualifying medical care, as well as other expenses related to maintaining your health and well-being.
Medical expenses include amounts paid for:
Health insurance premiums (including COBRA premiums)
Qualified long-term care insurance premiums, if the policy provides protection for at least 30 years
Hospitalization or surgery not covered by insurance
Visits with doctors or dentists; visits with chiropractors, osteopaths and non-physician practitioners who practice within the scope of their state’s laws; laboratory fees; x-rays; physical therapy; ambulance service; home health care services related to recovering from an injury or sickness that was not treated by a doctor or hospital (for example, nursing services provided by a nurse); wheelchairs and artificial limbs if prescribed by a doctor
If you’re self-employed or have investment income from rental properties (e.g., rental houses), you may also be able to deduct any unreimbursed employee business expenses–including those related directly to earning that income–as itemized deductions on Schedule A of Form 1040. These include:
There are several ways to minimize the amount of taxes you pay.
Taxes are a fact of life, but they don’t have to be as painful as they are. By using tax-advantaged accounts like 401(k)s and IRAs, you can minimize the amount of taxes you pay each year.
Charitable giving is also a great way to save on taxes. Since donations are tax deductible, you can reduce what goes into the government’s coffers by giving away some of your money and still feel good about it!
Finally, there are several ways for investors who want their money working for them rather than Uncle Sam: retirement account contributions are one option; another is investing in stocks or bonds held outside those accounts (and paying any required capital gains tax).
We hope this article has given you some insight into how to reduce the taxes you pay in 2023. We know that it’s not always easy to plan ahead, but these strategies will help make sure that your hard-earned money goes where it should: into your pocket!