5 Things to Do Before The Tax Deadline
It’s Not Too late to Lower Your 2023 Tax Bill
The tax deadline is soon to pass and with it some time sensitive opportunities will also disappear. Consider these tips to help reduce your tax liability (if implemented prior to the tax filing deadline). PS: For my fellow San Diego residents, the tax deadline was pushed back for many San Diego residents to June 17th for State & Federal due to disaster relief legislation (January floods).
Tip #1 – File your return and pay on time
Filing and paying taxes late can trigger an IRS late-filing penalty of 4.5% per month as well as a 0.5% monthly late payment penalty on any taxes owed. An extension to file is not the same as an extension to pay. If you owe tax at this year’s deadline it is still due by that deadline. If you need to extend, make sure you file Form 4868 and the equivalent state form to request an extension if you are not able to complete your filing on time.
Tip #2 – Contribute to an IRA (Individual Retirement Account)
You have until the April 15th tax deadline to save to an IRA and have it count towards the prior tax year. The contribution limit is $6,500 for the 2023 tax year. IRA’s generally reduce your taxable income for the year you contribute (if you contribute to an employer retirement plan like a 401k, you may not be eligible to deduct your IRA contribution if you earned too much). Not only can these tax-deductible retirement plan contributions help lower your current year’s tax liability, they also grow “tax deferred” which leaves more dollars in your account to compound and grow over time.
Tip #3 – Contribute to an HSA (Health Savings Account)
Similar to IRA contributions, you have until the tax filing deadline to make 2023 contributions to an HSA. HSA’s are a “triple tax free” powerhouse of an account. There are three main tax advantages of saving in an HSA:
Contributions are tax deductible (reduces your taxable income and therefore, your tax for the current year)
HSA contributions can be invested and grow tax free (powerful strategy if savings are left to compound for decades)
Withdrawals are tax free (when used to pay for qualified medical expenses)
So… no tax paid upfront, no tax on the growth, and no tax on the withdrawal… “triple tax free”
Tip #4 – Claim the home office deduction
For self-employed professionals who work from a home office (used exclusively for business), you may be eligible to claim a deduction for this space. The deduction is in proportion tot he square footage of your home that is designated exclusively for work. For 2023, if you do the standard deduction of $5 per square foot of home used for business (maximum 300 square feet), you could claim up to a $1,500 deduction. Allowable home-related itemized deductions may be claimed in full in your itemized deductions (Schedule A). For example: Mortgage interest, real estate taxes
Tip #5 – Itemize your deductions
Generally speaking, it makes sense to itemize deductions if your itemized deductions are greater than just taking the Standard Deduction ($13,850 single or $27,700 married filing jointly for 2023). People who own their own home, have large medical expenses (dental & vision count too), or make large charitable donations may be more likely to fall into this category.
In conclusion, there are things you can do right now to reduce your tax bill and accelerate your path to financial security. At Wonder Wealth, we love helping clients create custom tax planning strategies to reduce their tax liabilities. If you’d like help with reviewing your finances, reducing taxes, or discussing any other financial matter, feel free to schedule a free introductory meeting with us here.
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