9 Things You Can Do Today to Reduce Taxes Due in April

Taxes are a fact of life. And once the calendar changes from the current year to the next, you lose the opportunity to make certain tax moves that could lower your tax bill.

Consider using these clever tax moves you can make today to help optimize your finances. Don’t delay, as some opportunities could expire when the calendar hits January 1.

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If your employer offers a traditional 401(k) account that you don’t max out, you’re leaving potential tax savings on the table. Traditional 401(k) contributions are made on a pre-tax basis. This lowers your taxable income reported on your W-2, which is used to calculate the tax you owe.

The maximum employee contribution to a 401(k) for tax year 2023 is $22,500. People age 50 or older can contribute a total of $30,000. The limits for tax year 2024 are $23,000 for people under 50 and $30,500 for people 50 or older.

A traditional IRA is a tax-advantaged retirement account that may help you save money on your taxes. Contributions to these accounts may be tax-deductible depending on your circumstances. Contributions are limited to $6,500 for people younger than 50 or $7,500 for people 50 and older in 2023. In 2024. the limits are $7,000 for people younger than 50 or $8,000 if you’re age 50 or older.

If a workplace retirement plan does not cover you and your spouse, all traditional IRA contributions are typically deductible. If a workplace retirement plan covers you or a spouse, some or all of your contributions may not be tax-deductible depending on your modified adjusted gross income.

A health savings account (HSA) is another type of tax-advantaged account that could save you money on your taxes. Contributions to this account type may be made pre-tax or may be tax-deductible.

To open and contribute to this type of account, you must have a qualifying high-deductible health plan (HDHP). In 2023, HDHPs must have a deductible of $1,500 to $7,500 for individual coverage, or $3,000 to $15,000 for family coverage. Single health plan holders can contribute up to $3,850, and family health plan holders can contribute up to $7,750. 

In 2024, the deductible needs to be $1,600 to $8,050 for individual coverage, or $3,200 to $16,100 for family coverage. Single health plan holders can contribute up to $4,150, and family health plan holders can contribute up to $8,300.

To open and contribute to this type of account, you must have a qualifying high deductible health plan (HDHP). 

The tax code allows you to offset any capital gains you have against capital losses. Capital gains and losses occur when you sell capital assets, such as stocks or mutual funds. A capital loss can directly reduce your taxable income if you have capital gains.

However, the tax code takes things one step further and allows you to deduct up to $3,000 of capital losses above any capital gains you have. This provides an opportunity to lower your tax bill if you have an investment you want to sell that’s worth less than you bought it for.

Taxpayers have the option to itemize their deductions on their tax return. This means that instead of taking the standard deduction, they list each of their deductions individually. One of these potential deductions is for charitable contributions.

If a taxpayer makes a cash contribution to a qualified public charity or certain types of foundations, they can deduct this amount from their taxable income up to a limit of 60% of their adjusted gross income (AGI). The AGI is a taxpayer's total income minus certain adjustments, and it serves as the basis for various tax calculations.

Careful planning can help you maximize other itemized deductions, too. One common itemized deduction many homeowners take is the mortgage interest deduction. If you pay your January mortgage payment in December, the interest payment made as part of that payment is deductible in the current year.

However, this is only beneficial if you itemize deductions. If you take the standard deduction, you get no benefit. Additionally, accelerating a January mortgage payment into December can only be done once.

Next year, you’ll have to do this again if you want 12 months of mortgage interest payments you can deduct on your tax return. If you do not accelerate your January payment next year, you’ll only have 11 months of deductible mortgage interest on your next year's tax return.

If you live in a state that has a state income tax or other state and local taxes, you could benefit from accelerating this itemized deduction. Unfortunately, those taking the standard deduction won’t benefit at all from this idea. People who have already paid over $10,000 in qualifying state and local taxes won’t benefit either.

That said, people that have paid less than $10,000 in qualifying state and local taxes in the current year may want to make payments before the end of the year for upcoming payments due. Total qualifying state and local tax payments up to $10,000 may help reduce your taxable income, resulting in less federal income tax owed with your return. Keep in mind that any accelerated amounts paid won’t be able to be deducted from next year’s tax return.

Business owners have a unique opportunity to lower their personal income tax bills. If your business taxes flow through to your personal tax return, accelerating expenses by paying for them in late 2023 instead of early 2024 may help you reduce your taxable income. This strategy should work for cash basis Schedule C companies, partnerships, and S corporations.

A similar opportunity exists for the same business owners to reduce their taxable income further in 2023. If possible, cash basis business owners can attempt to delay income into early 2024, rather than receiving it in late 2023. Work with your customers and other income sources to delay receiving payments into next year. You may do this by invoicing later than usual or speaking with companies directly and asking for cooperation.

These tax moves may help you pay fewer taxes when you fill out your yearly tax return. Keep in mind, you should only consider these ideas if they make sense for your financial and tax situation. Consult a financial advisor and tax advisor to learn more about how these tax moves could impact you.

If you’re looking for other ways to improve your finances, consider these paycheck budget moves or even save some extra money with these Amazon shopping hacks. You can get a head start on the next tax season by making sure you keep track of any taxable events in a single place. This way, you have an easy way to get started next tax season.