The financial decisions you make between now and the end of the year can significantly impact how much you may pay once tax day arrives. If you take action before December 31st, you may reduce your tax burden and keep more of your hard-earned money. Here are some smart tax-saving strategies to consider:
1. Max out your retirement savings contributions
Tax-advantaged retirement accounts such as 401(K)s and IRAs fund with pre-tax dollars. Any additional contributions you make now can help lower your 2023 taxable income. Therefore, max out your retirement account contributions if you before the end of the year. If you receive an end-of-year bonus from your employer, request to contribute it to your pre-tax retirement savings account.
Use the IRS contribution limit notice for 2023 or contact your financial and tax professionals to determine how much you can save to help lower your taxes based on your situation.
2. Maximize your flexible saving account (FSA) contributions
FSAs are pre-tax healthcare savings accounts offered through employers designed to cover out-of-pocket healthcare costs. You don’t pay taxes on the money you contribute to an FSA. Here are a few more things about FSAs:
- Employers may contribute to your FSA, but they aren’t required to.
- You submit a claim to the FSA (through your employer) with proof of the medical expense and a statement that your plan hasn’t covered it.
- You’ll get reimbursed for your healthcare costs.
3. Participate in charitable giving
Charitable giving enables you to support a cause or organization you believe in. Still, it also offers a great way to save on taxes, even if you take the standard deduction. You can donate appreciated property or stock instead of cash to enhance your tax benefits further. No matter how you donate, keep a receipt, credit card or bank statement, or any other document that proves your contribution.
You can also give using a donor-advised fund or a strategy such as a trust. It would be best to talk to your legal, tax, and financial professional to help you determine an appropriate giving strategy.
4. Contribute to a 529 Plan
If you have children or grandchildren and would like to help them with the cost of college, there’s no better time than now to fund their 529 plans. You may deduct state taxes for contributions to a state-sponsored program, but consult your tax professional to understand the rules to take a tax deduction.
There is no federal tax deduction for contributions to a 529 plan, but the money in these accounts grows tax-free and can be withdrawn to use toward qualified education expenses like tuition, room and board, books, and supplies associated with the education.
