5 Savings Tips You Must Do To Maximize Your Tax Returns
Written by
Adam Palasciano
Edited by
Cory Dudak
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Tax time is fast approaching, and no one wants to owe more money on their tax bill come filing time this April. However, there are a number of smart strategies you employ to reduce your tax liability and owe less taxes on the whole.
Here are five ways to maximize your tax returns, according to CNET and Intuit:
1. Max Out Your Retirement Contributions
Contributing the maximum amount to your retirement account(s) allows you to defer taxes on your income. Retirement funds like 401(k)s and IRAs provide one of the most efficient vehicles for tax deduction. Not only can you reduce your tax bill, but you’ll also be saving for your future.
For 2023, the deduction limit for 401(k) contributions is $22,500, not counting employer contributions. If you’re over 50, you can make additional catch-up contributions to your 401(k) totaling $7,500 per year (or $30,000 total) in 2023. For IRAs, the maximum amount of tax-deductible contributions for 2023 is $6,500, or $7,500 if you are over 50.
2. Defer Payments or Bonuses
Regardless of the tax year, if you’re expected to receive a bonus or additional payment close to the end of the year, consider asking for a deferral. This can include a holiday bonus from your employer or a lump sum payment as a freelancer. The reason for deferring the payments to the following year? You’ll delay your tax liability on this additional income into the following tax year.
3. Make Strategic Business Purchases
If you already know you need to buy a new desk, a computer or more office supplies for next year, doing so before the end of the year allows you to take a large deduction. Consider making bulk business purchases in advance of the end of the year so that you can reduce your tax liability now and get the things you need ahead of time.
4. Contribute More Money to Your HSA
If you’re enrolled in a higher deductible medical insurance plan, you can add additional funds to your health savings account (HSA). HSA contributions are tax deductible and allow you to pay for necessary medical expenses. To be eligible for an HSA, your health insurance plan must impose the maximum annual out-of-pocket cost ceilings that meet the IRS’s limitations and you must be enrolled in a plan that has high deductibles that meet or exceed the IRS’s required amounts.
5. Learn More About Tax Credits
There are many tax credits that can offset your tax liability. There’s the Earning Income Tax Credit, Child Tax Credit, and the American Opportunity Tax Credit just to name a few. It’s important to do some research or work with a tax professional to maximize and claim all of the available tax credits you’re eligible for, thus reducing your tax liability.
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