With the tax deadline a couple of weeks around the corner, I want to help you out with some last second tax savings. Below are my list of 7 but please let me know what you’d add. Let’s hop in.
1. File Your Taxes For Free Using IRS Trusted Partners
The Internal Revenue Service (IRS) has a list of trusted partners on their website that you can use to potentially file your taxes for free.
Check it out for yourself Here.
I say potentially free because there are restrictions such as making over a certain threshold of money. For taxes due in 2024, that income threshold is $79,000. Also just a heads up, some of these places will only do the federal return for free but not the state return so make sure to read the fine print.
Even if you exceed the income threshold, I’d still recommend checking out these places as alternatives to the typical spots like Turbo Tax and H&R Block. The big companies can really screw you over with the add-on fees they force you into just for making an extra $100 as an Uber driver.
2. Contribute After Tax Dollars To Your Traditional IRA
You are able to put after tax dollars (money that has already been taxed) into an individual retirement account completely separate from any employer retirement account (such as a 401k or 403b). There are two main types of IRA’s: Traditional and Roth. I’ll do another post that goes more in depth on those but basically Traditional IRA’s avoid taxes on the front end but then you pay taxes later vs with a Roth IRA, you pay the taxes up front and then its 100% yours.
I bring this up because any dollars you contribute to a Traditional IRA are tax deductible on your federal tax return. The deduction happens on Schedule 1 (Form 1040).
Keep in mind you can only contribute a maximum of $6,500 to your IRA in 2023. That is the combined total of Roth and Traditional IRA’s. So if you already maxed out $6,500 to a Roth, then you cannot contribute any to a Traditional IRA.
What If I don’t Have An IRA?
You are still in luck! There is still time to open up an IRA and make contributions that count towards the prior year. You can make contributions for the previous calendar year all the way up until the tax deadline in April of the current year. Side note: if you file your taxes early and get a refund, you can use that refund to contribute to your IRA for the previous year. I will often do this to catch up on my savings goals for the previous year.
3. Contribute After Tax Dollars To Your HSA
Take what I said about Traditional IRA’s and apply similar logic to the Health Savings Account (HSA). HSA are beautiful savings vehicles that will definitely get its own post in the future. But for now, here’s what you need to know.
You must have an employer sponsored high deductible health insurance plan. Assuming that is in place, you can contribute $3,850 for a self-only coverage plan or $7,750 for a family coverage plan. You can set it up to come straight out of your pay check before taxes. But let’s say you didn’t do that or you did but did not max it out before the end of December. You can still contribute to your HSA for last year until the tax deadline.
Again the deduction is on your federal return on Schedule 1 (Form 1040).
I would highly recommend maxing out this account if you’re able, especially if you know you have some big medical expenses coming up. As mentioned above, I’ll write a full post on this one so that’s all you get for now.
4. Contribute To Your 529 Plan (If You’re Lucky)
529 plans are college saving vehicles that have tax advantages at a state level. Each state has a different plan but it usually provides a nice little tax deduction. I said contribute “If you’re lucky” because many states require you to make your contributions for a given year by 12/31. There are a few states however that do let you to continue to make contributions until the tax deadline.
5. Make Sure To Get Major Tax Credits If Applicable
Tax credits are different than tax deductions. Tax credits are much more impactful. Compare a $1,000 deduction to a $1,000 credit. Let’s say you have income of $50,000. A $1,000 deduction will lower your taxable income to $49,000. Now assume a 10% tax rate which puts your taxable amount at $4,900. If instead you had a $1,000 credit, here’s what would happen. Your $50,000 income would still be taxed at 10%, putting your taxable amount at $5,000. Now is when your tax credit would get applied, so your final taxable amount would be $4,000.
That was a $900 (4,900-4,000) difference between the two in our simple example. The reason is that tax deductions get applied to a much larger number than the tax credits. Definitely an over simplified explanation but should suffice for now.
I’ll highlight two heavy hitting tax credits you should see if you qualify for:
-Child Tax Credit
-Lifetime Learners Credit
The Child Tax Credit is pretty simple. If you have a kid, you qualify. There are rules of course but that’s the gist. The Lifetime Learners Credit is great for people in grad school/beyond 4 years of college. My wife and I took advantage of this our first 2 years of marriage while she was in grad school and it provided a nice tax refund. Do research yourself or reach out to me and I’ll walk you through it in more detail.
6. Get The Saver’s Credit
Assuming you completed step 2 above, you may be eligible for all or a portion of the Saver’s Credit. Basically the government is incentivizing us peasants to stock a way some money for retirement. This credit is more substantial for low income earners but like I said earlier, tax credits are better than deductions so any credits help.
7. Take Advantage Of Business Expense Deductions
This one only applies to people with a business but it’s still worth mentioning. There are a whole host of deductible items related to business so make sure you do your homework. If you aren’t tax/accounting savvy I’d advise you talk to a professional. I know that will cost more money but that should also produce more savings. If you have rental real estate, there’s many fun ways to legally avoid paying taxes. I’ll probably do a post on that as well.
Closing Thoughts
Hopefully you can apply a few of these items to save some money. Tax avoidance (legally) is a great thing. Tax evasion is bad. Don’t be bad. That’s all for now!
Leave a Reply to Yong Grandt Cancel reply