Financial moves at the year-end to make 2023 tax season more manageable

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Already, the 2023 tax season looks stressful. IRS’ returns backlog growing And the agency warns Americans their refunds might shrink. Taxpayers can make it easy to file their taxes by following a few simple steps before the end.

You can reduce the chances of being surprised when you file by saving money for retirement, cleaning out investment accounts, and checking that all your income is reported.

These are the top financial decisions that financial advisers recommend for last-minute.

Increase your retirement savings

Consider increasing your contributions during the last week of the year if you have access tax-deferred retirement accounts, such as a 401(k), 403 (b), or traditional IRA. Every dollar that you invest in retirement will lower your current income and reduce the amount you’ll pay tax.

You can only contribute $20,500 to your 401k if you are under 49, or $26,500 if 50 or older. You can put all or most of your last salary into your retirement fund if you haven’t contributed more than that.

“Fortunately, people over 50 can make top-up contributions to most of these plans. This is a common mistake. A second common error is when people move jobs midyear without double-checking whether their contributions are sufficient to reach the annual maximum,” Alina Fisch (a New York-based chartered financial adviser) said.

IRA owners can make up to $6,000 in contributions. restrictions Their income and access to other retirement programs will determine their eligibility. This strategy is also more attractive for taxpayers who have more time. You can still contribute to an IRA up until the tax deadline and still receive tax savings for 2022.

Maximize your contributions to the health savings account

A health savings account is similar to a 401(k) but takes money from your paycheck before taxes. You must spend it on healthcare costs. Anyone with a high health insurance deductible — defined as $1,400 or over for a single person or $2,800 for a family — can open an HSA, and there’s no time limit to use the money (unlike with a Flexible Spending Account).

Chris Diodato, an advisor based in Palm Beach Gardens and a financial planner, stated that “it’s not too late” to fund an HSA for people who purchase health insurance from the Affordable Care Act Marketplace. HSAs are available from many banks and online brokerages. You can contribute up to $3,650 and subtract the rest. [from your taxes] Diodato stated that $7,300 is the minimum amount for insuring yourself.

Many marketplace plans are HSA-eligible. However, when a patient enrolls for the insurance plans, they don’t automatically open an HSA account. This is why marketplace shoppers need to be careful, Diodato stated.

Make sure you have enough stock

Consider liquidating any investments that have fallen in value if your brokerage account is open. A capital-gains loss of up to $3,000 can be used to offset investments that earned you income — or money from a job.

Cody Lachner from Indianapolis, a financial advisor, stated that “Tax loss harvesting can provide a great opportunity for you to adjust your portfolio while also receiving a tax advantage.” “Ask yourself: “Do these investments still fit into my overall strategy?” He said that if not, it may be beneficial to sell those investments.

Bryan Minogue is a Madison-based financial advisor who suggests that you consider selling actively managed funds.

“These funds often distribute capital gains to fund-holders even if they didn’t trade.” Minogue stated in an email. Minogue said in an email, “In down years such as 2022 it’s a bit gut punch to have investments down but still receive a taxable distribution of your funds.”

Selling these funds at a loss can help investors avoid those capital gains distributions — typically paid out in December — while using the loss to offset other income, he noted.

Make sure you are paying enough taxes

If you have a high income, ensure that you are contributing enough tax to the system. Natalie Slagle, financial advisor, stated that her clients who earn over $200,000 find that the paycheck withholding does not cover all their tax liability.

Slagle stated that paying taxes on time can actually save money. The IRS will assess people for underpayment penalties if they are late in their payments.

Second-jobs and online income earners are more likely to be surprised by a tax bill than those who receive stock dividends. This is because stock grants don’t always include tax withheld at the time they are given.

Slagle explained that accounting should be done early for two reasons. Slagle stated that accounting early is important to avoid underpayment penalties and plan for how to make the bill.

She said, “If there is an obligation to pay something like taxes, I want to find out as soon as I can.” It is possible that the money may not be available if I delay filing until March 31st and discover I have to pay three grand.

The IRS can be used by curious taxpayers Tax Withholding Estimator To see if enough money has been taken from their paychecks. This tool will ask about wages and other income sources, such as investments and alimony.

Donate simply to help others

Many taxpayers donate to charities, household goods or stock as a way to lower their tax liability. This is a common move, but tax pros warn against charitable giving if it is not your intention to lower your taxes.

This is because you can only claim a tax deduction when you give to charity if your itemization is complete. The vast majority of Americans do not. (This rule, which has been in place for many years, was changed during the pandemic. It is now back in force for the upcoming tax season.

Slagle said that even a 1000-dollar charitable deduction won’t be enough to make it worthwhile to itemize instead of taking the standard deduction.

Her advice: “Donate to donate — don’t donate for the tax deduction. It doesn’t matter if tax benefits, but do it if you really want to.

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