End-of-Year Tax Moves: Simple Actions to Boost Your Refund
As the year draws to a close, it’s time to start thinking about your taxes. Making strategic moves before December 31st can significantly impact your tax refund or reduce the amount you owe. Here are some simple actions you can take to boost your refund and ensure you’re in good financial shape when tax season rolls around.
Maximize Retirement Contributions
One of the most effective ways to reduce your taxable income is by maximizing your contributions to retirement accounts. If you have a 401(k) through your employer, consider increasing your contributions before the year ends. For 2023, the contribution limit is $22,500, or $30,000 if you’re 50 or older. Additionally, contributions to a traditional IRA can also reduce your taxable income, up to $6,500 for those under 50 and $7,500 for those over 50.
Take Advantage of Tax-Loss Harvesting
If you have investments in stocks or mutual funds, consider tax-loss harvesting. This involves selling investments that have lost value to offset any capital gains you may have earned throughout the year. By doing this, you can reduce your taxable income and potentially lower your tax bill. It’s essential to be mindful of the “wash sale” rule, which disallows a tax deduction if you repurchase the same or a substantially identical security within 30 days of the sale.
Donate to Charity
Charitable donations are a great way to give back to the community and reduce your taxable income. If you itemize deductions, any donations made to qualified charitable organizations can be deducted from your taxable income. Be sure to keep receipts and documentation for any contributions you make, as the IRS requires proof for deductions.
Review Your Withholdings
Reviewing your tax withholdings can ensure that you’re not overpaying or underpaying taxes throughout the year. Use the IRS’s Tax Withholding Estimator tool to determine if you need to adjust your withholdings. By doing so, you can avoid a large tax bill or increase your refund come tax season.
Consider Energy-Efficient Home Improvements
If you’ve been considering making energy-efficient upgrades to your home, now might be the time. The federal government offers tax credits for certain energy-efficient home improvements, such as installing solar panels or energy-efficient windows. These credits can reduce your tax liability and help you save money on energy costs in the long run.
Pay Off Medical Expenses
If you’ve incurred significant medical expenses throughout the year, consider paying them off before December 31st. Medical expenses that exceed 7.5% of your adjusted gross income (AGI) can be deducted if you itemize. By paying off expenses before the end of the year, you can potentially increase your deduction and lower your taxable income.
Conclusion
By taking these simple actions before the year ends, you can maximize your tax refund and set yourself up for financial success. As always, it’s crucial to consult with a tax professional to ensure you’re making the best decisions for your unique financial situation. With a little planning and foresight, you can take control of your taxes and potentially save yourself a significant amount of money.
