Last-Minute Ways To Reduce Your Taxes for 2023
It's everyone's favorite time of year: tax season!
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This year individuals have until April 18 to file their 2022 federal income taxes. And while there's really not too much you can do to ease the burden of paying taxes, there are a few final moves you can make to maximize your benefits.
Note that while the regular tax deadline is April 15, since that falls on a Saturday this year, the IRS automatically extends it to Tuesday, April 18.
Check out the ways you can trim down the amount you owe good ol' Uncle Sam.
1. Take a Hard Look at Your 1099s
Nicholas Olesen, CFP, CPWA, director of Private Wealth at Kathmere Capital Management said that it's important to verify the information printed on any 1099 you receive because it might not be accurate. Olesen said that's especially the case if you are an executive that receives stock as part of your compensation.
"Upon vesting you are able to sell those shares or hold onto them to sell at a later date," Olesen said. "However, you are taxed, that year, on receiving those shares as income. So, you have just paid ordinary income tax on it, which is included in your W2. But, what happens when you sell those shares?"
Olesen said you'll receive a 1099 from the brokerage company that holds the shares, and it will show a gain or loss, which might require you to pay capital gains tax. "Here's where the big mistake can happen," said Olesen. "I've witnessed many instances over the years where the tax form shows a cost basis of zero and the gain as the total amount you sold. That is not correct. You already paid income tax on it at that time it was granted and therefore your cost basis is the price the stock was given to you multiplied by the shares you were granted."
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2. Contribute To an IRA
"Depending on your income level and access to retirement plans your contribution may be tax-deductible or in the case of a Roth IRA, be tax-free in retirement if you follow the rules," said Patricia Stallworth, CFP and CEO of PS Worth. "In either case, you win because it increases your retirement nest egg."
You have until April 18 this year to make contributions to your IRA. You can contribute up to $6,000 for tax year 2022 -- $7,000 if you're age 50 or older.
3. Get a Head Start on Your Kid's College Fund
You may be done with college -- but what about your kids? A great way to get a head start on their future educational costs and to possibly save on your 2022 income taxes is to dump some cash into your child's 529 college savings plan. Depending on your state, this might get you a state tax deduction.
The contribution doesn't have to be for your own child to earn you a deduction. In Virginia, for example, Virginia529 account owners who are also Virginia taxpayers can deduct up to $4,000 per account per year, regardless of who the beneficiary is.
4. Consult Your HR Department
"Call your Human Resources Department," said Howard Dvorkin, CPA and chairman of Debt.com. "You might have work benefits that offer tax breaks. These are pretty specific. For example, did you have an HSA-eligible health insurance policy? ...You can make extra contributions right now that will come off your taxes."
For tax year 2022, the annual limit on HSA contributions is $3,650 for a self-only insurance plan and $7,300 for a family plan. You can make an additional, $1,000 catch-up contribution if you're age 55 or older at the end of your tax year.
To be eligible, the insurance plan must be a high-deductible health plan with a minimum deductible of $1,400 for self-only coverage or $2,800 for family coverage. The maximum out-of-pocket expenses mustn't exceed $7,050 for a self-only plan or $14,100 for a family plan.
The deadline for making a 2022 contribution to your HSA is April 18, 2023.
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5. Make Sure Your Return Is Done Correctly
"Rushing your filing or failing to ask questions can result in an incorrect tax return," said Lauren Anastasio, Senior CFP at Vanguard. "When this happens it's very possible you will need to file an amended return, which is both costly and time-consuming. It may be worth hiring professional help to file your return even if you're used to doing it yourself -- it will be cheaper to pay someone to help you do it correctly the first time then file an incomplete or incorrect return and go through the process of amending it."
6. Get Expert Tax Help for Free (If Eligible)
Some taxpayers are eligible for free assistance preparing their tax returns.
"The IRS has two programs, called Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE)," Dvorkin explained.
VITA offers free basic return preparation to those who earn under $60,000 or are disabled or have limited ability to speak English.
TCE helps individuals aged 60 or older during the normal filing period, which is Jan. 1 to April 15.
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Cynthia Measom and Daria Uhlig contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: Last-Minute Ways To Reduce Your Taxes for 2023
