20 Tax-Saving Tips for 2023
As the tax season approaches, it’s important to think about ways to save on your tax bill. Here are 20 tips to help you save on taxes and keep more money in your pocket.
- Contribute to a 401(k) or other employer-sponsored retirement plan. Contributions to these plans are made with pre-tax dollars, which can lower your taxable income and reduce your tax bill.
- Make contributions to a Traditional IRA or Roth IRA. Both types of individual retirement accounts offer tax benefits, but they work differently. Contributions to a Traditional IRA may be tax-deductible, while contributions to a Roth IRA are made with after-tax dollars but qualified withdrawals are tax-free.
- Take advantage of the Saver’s Credit. If you are a low- or moderate-income taxpayer, you may be eligible for the Saver’s Credit, which can provide a credit of up to $1,000 for single filers and $2,000 for joint filers.
- Consider converting a Traditional IRA to a Roth IRA. While you’ll have to pay taxes on the conversion, a Roth IRA may offer tax-free growth and tax-free withdrawals in retirement.
- Donate to charity. Charitable donations can be deducted from your taxable income, but be sure to keep good records and only donate to qualified charities.
- Claim the Child and Dependent Care Credit. If you pay for childcare or other dependent care expenses while you work or look for work, you may be able to claim the Child and Dependent Care Credit.
- Take advantage of the American Opportunity Credit or the Lifetime Learning Credit. These credits can help offset the cost of higher education for yourself or a family member.
- Claim the Earned Income Tax Credit. The Earned Income Tax Credit is a credit for low- to moderate-income taxpayers, especially those with children.
- Consider selling losing investments to offset gains. If you have realized gains on investments, you can offset those gains by selling losing investments. This is known as tax-loss harvesting.
- Defer income to the following year. If you are self-employed or have control over when you receive income, consider deferring income to the following year to lower your tax bill in the current year.
- Take advantage of the home office deduction. If you use a portion of your home exclusively for business purposes, you may be able to claim the home office deduction.
- Claim the self-employment tax deduction. If you are self-employed, you may be able to deduct a portion of your self-employment taxes.
- Don’t forget about state taxes. In addition to federal taxes, you may also owe state and local taxes. Be sure to consider the tax implications of living and working in different states.
- Contribute to a health savings account (HSA). If you have a high-deductible health plan, you may be able to contribute to an HSA, which offers tax-free contributions and tax-free withdrawals for qualified medical expenses.
- Claim the adoption credit. If you adopt a child, you may be able to claim the adoption credit to offset the costs of the adoption process.
- Don’t overlook tax credits for renewable energy. If you install renewable energy sources like solar panels or a wind turbine at your home, you may be able to claim credits to offset the cost.
- Consider a tax-efficient investment strategy. Some investments, like index funds, may be more tax-efficient than others. Consider working with a financial advisor to develop a tax-efficient investment strategy.
It’s important to note that these tax-saving tips may not all be applicable to your specific situation, and it’s always a good idea to consult with a tax professional or refer to the IRS website for more information. By taking advantage of these tax-saving opportunities, you can potentially lower your tax bill and keep more of your hard-earned money.