10 Money-Saving Tax Moves You Can Still Make Before 2023 Ends
Written by
Jennifer Taylor
Edited by
Carly Brashears
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It’s never too early to start thinking about tax season. The holidays are currently in full swing, but December 31 is the last day you have to make a variety of 2023 tax moves.
This means it’s time to assess your financial situation and see what you can do to reduce your tax burden. Here are 10 tax moves you should consider making right now.
Start a Backdoor Roth IRA
If you’re a high-earner, Brett Wysopal, CFP, ECA, lead financial planner at Secfi, recommended checking to see if you’re eligible to do a backdoor Roth IRA.
“This strategy can be utilized if your income is too high to make a tax-deductible IRA contribution and is too high to make a direct Roth IRA contribution,” he said.
If you’re interested in this strategy, he said it’s important to learn about the pro-rata rule.
“This rule stipulates that if you have tax-deferred IRAs in your name and attempt the backdoor Roth, you will have a portion that is moved from a traditional IRA to [a] Roth IRA tax-free and a portion taxable.”
Contribute More to Your 401(k)
It’s never too early to start saving extra for retirement. Wysopal advised taking a look at the amount of money you’ve contributed to your 401(k) for the year.
“The maximum an individual can put in as an employee is $22,500 for 2023,” he said. “If you make pre-tax contributions, this will reduce your taxable income.”
Contribute to an HSA
A health savings account is an excellent tool for reducing your taxable income, said Mike Jesowshek, CPA, founder at TaxElm.
“Interest or earnings within the HSA are not taxed,” he said. “Withdrawals are tax-free, if used for qualified medical expenses.”
Therefore, he believes this is an opportunity you shouldn’t pass up.
“It is a rare tool that the IRS lets you ‘win’ on both ends — the contribution and the withdrawal,” he said. “For this reason, we recommend everyone be maxing out their HSA contributions, if they qualify and can afford it.”
To qualify for an HSA, he said you need to have a high-deductible health plan.
“For 2023, the contribution limit is $3,650 for individuals and $7,300 for families,” he said.
Estimate Your Taxable Gains
Knowing where you’re at financially is a must to ensure you make the right tax moves.
“You can use your investment data to identify your tax rate and estimate how much you’ll owe on your investment sales so far,” said Adam Nash, CEO and co-founder at Daffy and an adjunct finance professor at Stanford University. “Use this to explore options to lower that tax responsibility before year-end.”
Tax Loss Harvest Your Portfolio
A strategy that can be used in your taxable brokerage accounts, Wysopal said the IRS allows you to take losses on down positions and immediately reinvest them into something similar, but different.
“Each year you are able to deduct $3,000 in losses against your income,” he said. “If you take more than $3,000 in losses, you can carry forward the remaining balance into future tax years.”
Donate Stock To Avoid Capital Gains and Reduce Your Tax Burden
Donating stock to charity is a good way to help others and avoid excess taxes, Nash said.
“Skip the wash sale rule by donating,” he said. “This rule prohibits taxpayers from claiming a loss on the sale of security if that person repurchases the same stock within 30 days, but does not apply when appreciated stock is donated to charity.”
Establish a Donor Advised Fund
Effectively a charitable investment account used to support causes close to your heart, creating a donor-advised fund can help you give back, while lowering your tax burden.
“With a donor-advised fund, you can contribute to your fund, qualify for the deduction and then decide which charity to support at any time,” Nash said. “Consider the ‘bunching strategy’ and stack your gift-giving for multiple years in one tax year to reduce your taxable income.”
Pay Any Tax Debt You Currently Owe
If you currently owe taxes, now is the time to settle that debt. The IRS charges penalties on most tax debts, as well as interest on those penalties.
The date interest starts to accrue depends on the type of penalty and increases with the amount owed until your balance is paid in full. Making repayment a priority now will allow you to start the new year with a clean slate.
You can choose to tackle your tax debt on your own or reach out to a professional. Some tax resolution companies, such as Tax Relief Advocates, offer free consultations where an expert will review your tax situation and propose a path forward. Tax debt experts may also be able to help you work with the IRS to reduce your tax burden.
Postpone Income and Accelerate Deductions
When possible, try to limit the amount of income you receive for the rest of the year, said Mark Luscombe, JD, LLM, CPA, principal analyst at Wolters Kluwer Tax and Accounting Division in North America.
“If you are self-employed, it is easier to delay income from customers until after year-end and to make business purchases before year-end,” he said. “Even employees can ask for year-end bonuses to be announced after year-end.”
Give a Gift to Loved Ones
If you can afford it, Luscombe suggested giving a monetary gift to family or friends.
“Wealthier taxpayers should consider annual gifts to loved ones in 2023, 2024 and 2025, while the unified gift and estate tax credit is still high,” he said. “It’s currently scheduled [for a] reduction to only about half of its current size in 2026.”
This can make an incredible holiday gift — one that benefits both you and the recipient — so consider taking this route if you can swing it.
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