7 Tax Strategies for Maximum Savings Before the End of the Year
When the clock starts to tick towards the end of the year, many people start to think about the various tax savings strategies that they can take advantage of. With the 2023 standard deduction set at $13,850 for single filers and $27,700 for those filing a joint return, it pays off to start planning now to get the most out of this year’s taxes. Here are seven tax strategies to consider before the end of the year.
1. Maximizing Deductions
The best way to get the most value from your deductions is to bundle them together if possible. By timing payments for property taxes and income taxes strategically, along with making large charitable donations, you can often exceed the standard deduction and get a larger tax break this year.
2. Donating Appreciated Assets
If you’re not filing as a itemized deduction, cash charitable contributions won’t be deductible. However, you can still get a break by donating appreciated assets. This allows you to avoid having to pay the capital gains tax on the asset while still getting the credit for the donation.
3. Taking Advantage of Capital Losses
If you own stock or other assets worth less than you originally paid for them, you can sell the asset and claim a capital loss. The resulting loss gets applied to your capital gains and up to $3,000 of ordinary income as a way to offset taxes.
4. Converting to a Roth IRA
A great way to get more flexibility when structuring retirement income is by converting savings from a traditional IRA to a Roth IRA. Work with a financial advisor to determine how much can be converted without pushing you into a higher tax bracket.
5. Making Use of FSA Dollars
If you’ve taken advantage of a Flexible Spending Account to help with out-of-pocket medical expenses, now is the time to make use of any pre-tax dollars you have set aside. Check with your employer to see what sort of grace periods or roll overs into next year are offered for unused funds, and so you don’t lose out on potential tax savings.
6. Taking Advantage of Education Savings
If you plan on funding college expenses for yourself or your children in the future, now may be the time to look into education savings accounts. By contributing to a 529 plan or a Coverdell Education Savings Account, you can get tax benefits for the funds that can be used to pay for educational expenses.
7. Investing in Municipal Bonds
Finally, investing in tax-free municipal bonds can help you save money come tax season as interest and dividends earned are typically exempt from federal taxes. Remember when making investments to always analyze your current financial position and make sure a particular investment is suitable for your case.
By arming yourself with the right knowledge and acting shortly before the year ends, you can save big on taxes and start off 2023 on the right foot. Get the best value possible by planning now and work with a professional financial advisor and tax consultant to ensure you are maximizing tax savings for both this year and next.