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With less than two months to go until 2023 taxes are due, there is still plenty of time to lower your bill or maximize your refund, advisors say. It\u2019s also the perfect time to look ahead to decreasing your burden for 2024.<\/p>\n
Firstly, it\u2019s important to make sure you have all of the documents you\u2019ll need to file, advisors say: That\u2019s W2s and 1099s, yes, but depending on your situation, also 1099-INTs (for interest payments), 1099-Gs (for unemployment payments) and SSA-1099s (for Social Security payments), to name just a few. It\u2019s also important to gather all required documents as soon as possible.<\/p>\n
\u201cWaiting until the last minute can lead to unnecessary stress and potential errors,\u201d says Ashton Lawrence, a South Carolina-based CFP at Mariner Wealth Advisors.<\/p>\n
From there, review the big changes for 2023, Lawrence suggests. Pretty much all of the COVID-19-related tax changes and benefits weren\u2019t in place last year, which means your refund could be very different from the past few years. Also, the standard deduction, tax brackets, and retirement contributions have all changed. <\/p>\n
Then you\u2019re ready to get started. Here are some additional tips from financial advisors on making filing simple and maximizing your refund. (And don\u2019t miss Fortune<\/em>\u2018s other tax<\/a> season coverage<\/a>.)<\/p>\n If you haven\u2019t done so already, you still have time to contribute to a traditional or SEP IRA and reduce your tax. Each year, you have until the filing deadline\u2014April 15, 2024 this year\u2014to max out your contributions.<\/p>\n The max for a traditional IRA last year was $6,500 ($7,500 for those 50 and up) while the max for SEP IRAs, used by some business owners, is much higher\u2014the lesser of 25% of compensation or\u00a0$66,000.<\/p>\n \u201cThese accounts can offer\u00a0tax-deferred growth on top of pre-tax\u00a0contributions that can set you up well for retirement and save you a lot on\u00a0taxes right now,\u201d says Bryan Cassick, a CFP at California-based Warren Street Wealth Advisors.<\/p>\n Just make sure to classify your contribution as a prior-year contribution\u2014otherwise, your IRA provider will likely classify it is as a current-year contribution. You also have until April 15 to max out a Roth IRA for 2023; that won\u2019t lower your tax bill now, but it can help you build your savings.<\/p>\n All that said, you can also begin planning 2024. Though you can\u2019t backfill your 401(k) contributions for 2023, you can get a sense of whether it would be advantageous to contribute more this year to decrease your tax burden next year.<\/p>\n \u201cIncreasing 401(k) contributions can help reduce\u00a0taxable income for the future year,\u201d says Lawrence. \u201cHaving a good understanding of your situation can help determine the most advantageous way to proceed.\u201d<\/p>\n For 2024, the maximum you can contribute to a 401(k) as an employee is $23,000 (between employee and employer contributions, the total is $69,000), and $30,500 for those 50 or older.<\/p>\n Like an IRA, you also have until April 15, 2024, to contribute to your health savings account, or HSA, for 2023. Individuals can contribute up to $3,850, while families can sock away $7,750 (those 55 or older can contribute an extra $1,000).<\/p>\n Financial planners love HSAs because they offer amazing tax advantages. Contributions reduce your taxable income, and then you can invest the contributions, which grow tax-free. Finally, withdrawals are also tax-free, as long as they are used for qualified medical expenses. Planners refer to that as a triple tax advantage.<\/p>\n Unlike flexible spending accounts, you can roll over your savings in a HSA from year to year, which can be helpful as additional retirement planning.<\/p>\n But not everyone qualifies for a HSA: You need to be enrolled in a high-deductible health plan to have one.<\/p>\n Interest earned on your savings is classified as earned income by the IRS. That means, technically, you need to report it on your tax return, even if it\u2019s only a few dollars.<\/p>\n That could trip people up who aren\u2019t used to the reporting requirements. The bank or financial institution that holds your savings accounts\u2014or CDs, or money market funds\u2014should send you a form 1099-INT detailing the interest you earned over 2023. You won\u2019t necessarily owe tax on it, but you need to report it all the same.<\/p>\n \u201cWith the low rates of the last few years, the tax was minimal,\u201d says Rob Schultz, a\u00a0certified financial planner<\/a>\u00a0and wealth manager in California. \u201cBut with higher rates in 2023, many people might not plan on getting such a large 1099 for their interest income on savings.\u201d<\/p>\n If you\u2019re getting a raise in 2024, or your income in 2023 was otherwise lower than it will be this year, it could be smart to look into a Roth IRA conversion, says Thomas Lucas, an Orlando-based CFP at Moisand Fitzgerald Tamayo.<\/p>\n A Roth conversion is when you convert your traditional IRA into a Roth IRA, which is mostly helpful for people who earn too much money to make contributions to a Roth outright<\/a>. When you make the conversion, you\u2019re essentially moving from a pre-tax vehicle to a post-tax vehicle, which means you\u2019ll pay taxes on the money now at your current rate, and then it will grow tax-free. That\u2019s why it\u2019s smart to do when your income is less and you\u2019re still in a lower tax bracket.<\/p>\n Once you make the conversion, you\u2019ll enjoy all the benefits of a Roth IRA: Tax-free withdrawals in retirement and no required-minimum distributions during your lifetime. As this process is irreversible, it\u2019s smart to speak with a financial professional before making this move to learn all of the pros and cons for your individual financial situation. <\/p>\n \u201cYour goal should be, over your lifetime, to pay\u00a0taxes when you are in low\u00a0tax\u00a0brackets and defer income when you are in high\u00a0tax\u00a0brackets,\u201d says Lucas.<\/p>\n The quickest way to get any refund owed is to file electronically, using tax software or the IRS\u2019s site, and have the refund direct deposited into your bank account. When you do this, the IRS says it typically takes around 21 days to get the refund, depending on the agency\u2019s bandwidth and whether or not you filled everything out correctly.<\/p>\n Electronically filing\u2014whether through a tax preparer like TurboTax or with a professional\u2014does make the filing season easier. It\u2019s easy to forget things if you\u2019re filling out paperwork by hand, but the software is more likely to find credits or deductions you would have missed. The software should also ensure that you\u2019ve filled out everything correctly and your return isn\u2019t rejected by the IRS.<\/p>\n Finally, receiving your refund electronically is actually safer than getting mailed a paper check, which can be stolen or lost in transit. Stay up to date on the status of your refund using the agency\u2019s\u00a0online tracking tool<\/a>.<\/p>\n Crypto is classified as property by the IRS, which means you don\u2019t pay taxes when you buy or hold the asset, but rather when you sell it, exchange it, or use it to buy something else. Any trading activity needs to be reported on your tax return.<\/p>\n That can be a tedious process, depending on how active you were last year. But it\u2019s important, because the IRS is on high alert for illegal activity. <\/p>\n \u201cThe IRS is closely monitoring these transactions, so it\u2019s crucial to keep detailed records of all crypto-related activities to avoid penalties,\u201d says Lawrence.<\/p>\n On your Form 1040, you\u2019ll see a yes or no question asking<\/a>: \u201cAt any time during 2023, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?\u201d<\/p>\n Checking \u201cno\u201d means you\u2019re done; checking \u201cyes\u201d requires an additional form. You\u2019ll have to detail your sales, exchanges, etc., and then calculate your capital gain or loss, reported on Schedule D. If you only purchased crypto last year, you can check \u201cno.\u201d<\/p>\n And of course, you need to report any crypto income if you received it in exchange for a service, for example. The IRS has a detailed FAQ page<\/a> with many more details on crypto.<\/p>\n If you owe tax unexpectedly, it\u2019s likely time to check your withholdings for future years, says Lucas. He advises using the IRS\u2019s tax withholding estimator<\/a>, which will pre-populate a W4 you can give to your employer\u2019s HR department.<\/p>\n \u201cHave your W4 adjusted,\u201d says Lucas. \u201cThis will help avoid unnecessary underpayment penalties.\u201d<\/p>\n This works the other way, as well: If you receive a large refund, it could also be prudent to change your withholdings. In theory, you want to owe the IRS nothing come tax time and receive nothing in return; receiving a large refund means you\u2019re paying the IRS extra money for no reason. That could be better spent by you throughout the year, whether it\u2019s invested, saved, or put toward other bills or goals.<\/p>\n That said, some people simply like being able to count on receiving a large sum of money once a year. If that\u2019s you, then you don\u2019t necessarily need to change anything. Just make sure you know the pros and cons of both sides.<\/p>\n<\/div>\n1. Max out your 2023 retirement accounts<\/h2>\n
2. Contribute to a health savings account<\/h2>\n
3. Make sure you report all income\u2014even savings account interest<\/h2>\n
4. Consider a Roth IRA conversion<\/h2>\n
5. File electronically<\/h2>\n
6. Report crypto transactions accurately<\/h2>\n
7. Check your withholdings<\/h2>\n