There are still a few options you have to reduce your taxable income for 2023, even though we’re almost at the end of the year. Here are some strategies to consider:
Retirement Contributions
- Max out your 401(k) or 403(b): For 2023, the limit for employee contributions is $22,500, with an additional $7,500 catch-up contribution if you’re aged 50 or older. Contributing to these accounts reduces your taxable income for the year.
- Contribute to a traditional IRA: For 2023, the contribution limit for IRAs is $6,000, with an additional $1,000 catch-up contribution if you’re aged 50 or older. Depending on your adjusted gross income, contributions to traditional IRAs are tax-deductible, lowering your taxable income.
- Consider a SEP IRA if you’re self-employed: The contribution limit for SEP IRAs in 2023 is 25% of your net self-employment income, up to $66,000. These contributions are tax-deductible, reducing your taxable income.
Other Pre-Tax Contributions
- Health Savings Account (HSA): If you have a high-deductible health plan, you can contribute to an HSA. The contribution limit for 2023 is $3,850 for individuals and $7,750 for families. These contributions are tax-deductible, lowering your taxable income.
Pre-paying 2024 Deductions
- Consider prepaying certain expenses: If possible, consider prepaying certain expenses that are typically due in January, such as property taxes or mortgage interest, into December 2023. This can help you bunch deductions into a single year and lower your taxable income.
- Contribute to charities in December: If you plan to make charitable contributions, consider making them before the end of the year to claim the deduction in 2023.
Harvest Capital Losses
- If you have investment losses in your portfolio, you can sell them before the end of the year to offset capital gains and reduce your taxable income.
Please comment or send an email if you have any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
