It’s the start of a new year and I’d like to wish you a Happy New Year! 2023 has approached us and that only means, tax season is here!
Let’s start this year right by reducing your tax bill using the following strategies listed below. The ideas mentioned below are ways that you or your accountant can utilize when filing your taxes to help you save money on your taxes, the legal way.
- Commuter Benefits
For 2023, you can spend $300 per month tax-free (as a tax deduction) on commuting which equates to $3,600 per year. Examples of these expenses can be for mass transit, trains, busses, ride-sharing such as Uber or Lyft, parking meters, parking garages, parking lots and more. - Retirement Plans
A lot of jobs/workplace offers retirement plans such as 401k’s and 403b’s. A 401k is offered by for-profit companies and a 403b is offered by non-profit organizations and government entities. Money contributed to a 401k and 403b would help reduce your tax liablitiy. - HSA (Health Savings Account)
Contributing to your Health Savings Account, better known as an HSA, will allow you to lowers your taxable income for individuals who has High-Deductible Health Plan (HDHP). When you put money into your HSA account, you will receive a tax deduction to lower your taxable income. You can use the funds in your HSA on health related expenses and will not have to pay taxes on that money. You can earn a returns and interest earnings on the contributed funds tax-free! - FSA (Flexible Spending Account)
A FSA is a flexible spending account. An FSA allows you to pay for certain health care expenses with pre-tax money. The Cons of an FSA is that you will lose the left-over money that you did not use unless your job/company has a roll-over feature for your account. - Dependent Care FSA
With a Dependent Care FSA, you can pay for childcare expenses with pre-tax money. You can do this for children and adult dependents. You can use your pre-tax money to pay for pre-school, nurseries, nannies, babysitters, daycamps, daycares, adult day care facilities and much more! - Capital Losses
Did you partake in the stock market or crypto investments last year? Reporting the investments that you lost money on through any stock brokerages that you utilized throughout the year or real estate investments, you can use the loss that you’ve incurred to reduce your taxable income when filing your income taxes. - Long-Term Capital Gains
The tax rate for long term capital gains is about half your regular tax rate. Long term capital gains receive much better tax treatment. Tax rates for long term capital gains can be as low as 0% depending on your income threshold. - Review Your 1099-B Tax Form
If you used brokerage accounts with brokerages such as Fidelity, Robinhood, TD Ameritrade, Charles Schwab and others, you would receive a 1099-B tax form by mid-February which produces a year-end tax statement for your stock market activity. You can review it to make sure there aren’t any common mistakes such as information that’s blank or missing, getting these issues fixed may be able to save you a lot of money. Your 1099-B says how much you bought a stock for and how much you sold it for. If it doesn’t show you how much you bought it for, but it says how much you sold it for, this would mean that you would be paying taxes on your investment along with your profits without reducing your cost-basis on your investment! - Marginal Interest On Your Investments
You can deduct your investment interest that you paid such as margin interest. This information is not usually listed on your 1099-B cover page so people usually miss it but be sure to include it in your investment expenses to avoid having to pay taxes on these expenses. - Gambling Losses
If you went to the casino and won big, you will receive a tax form W2-G. The casino sends a copy of your winnings to IRS (aka Uncle Sam), therefore if you don’t report your winnings to your tax return, you can get in trouble with Uncle Sam. If you received a W2-G, you can report your gambling losses to offset your winnings. - Traditional IRA
The Traditional IRA is a retirement account that you would setup outside of your job/work to fund your retirement savings. You receive a tax deduction for the funds that you contributed to your Traditional IRA account which differs from a Roth IRA account. There’s a max contribution on these accounts but be sure to not forget to include these contributions to your tax return. - 529 Plan Contributions
If you want to put money away for eduction for yourself, child or someone else, you can utilize a 529 Plan. You will not receive a tax deduction but you may be able to receive a tax deduction on your state income taxes. Some states do not give a tax deduction such as California and some states do not have state income taxes such as Texas and Florida. You can still benefit with a 529 Plan through tax-free growth on your contributions. - Fix Your W-4 Payroll Settings
If you usually owe money to the IRS when filing your tax returns, you could be charged an underpayment penalty without realizing it. The penalty is usually shown on your tax return but many people tend to overlook it but this liability will add to your balance due to IRS. To prevent this, you can adjust the amount of taxes that’s witheld on your paycheck. You can update your W-4 within your HR department to adjust your settings. - Minimal Rental Use Rule
A lot of people have been listing their homes through various vacation rental platforms such as Airbnb. If you rented your home for less than 14-days to any guests, you are not obligated to pay taxes on the income earned which makes it 100% tax-free! This tax strategy is called the Minimum Rental Use Rule.
That’s it folks! I hope with this information, you will be able to save a lot more than you were expecting when filing your taxes this year or utilizing these tips to prepare you when filing your taxes next year. If you were able to find these tips beneficial to you, please share this post with a friend or family member so they can to benefit and save money on their taxes with the IRS.