Tax time is just around the corner. Here are some steps you can take to minimize your personal income tax bill.
Maximize Retirement Contributions
- 401(k) contributions limit is $20,500 ($22,500 in 2023) with a catch-up contribution of $6500 ($7,500 in 2023) for those 50 or over – max of $27,000 ($30,000 in 2023).
- Traditional IRA plans of $6,000 ($6,500 in 2023), with a catch-up contribution of $1,000 for those 50 and over – max $7000. For those covered by a workplace retirement plan such as a 401(k), there are phase outs in which you can deduct it. Please check with your advisor to determine the maximum amount in your situation. Contributions are due by April 15, 2023.
- Simple IRA contribution limits are $14,000 ($15,500 in 2023) with a catch-up contribution of $3000 ($3,500 in 2023)
- If you are self-employed, you may be able to contribution up to 25% of your net income to a SEP IRA or Keogh plan, maximum of $61,000 ($66,000 in 2023). Contribution has to be made prior to filing your return or due date.
Fund a Health Savings Account
If you have a high deductible insurance policy that qualifies, a business owner can fund an HSA account for $3650 ($3,800 in 2023) single or $7300 ($7,750 in 2023) for a family policy. There is also a $1000 catch up for those over 55. Contributions for 2022, are due by April 15, 2023.
Maximize Your Health Insurance Tax Credits
If you receive tax credits to reduce your health care insurance premiums watch your income. If it exceeds $68,960 for married folks you will be denied the tax credit and get charged the full premium, which could be close to $25,000.
Capital Gains
Review your capital gains and capital losses to minimize your overall taxes.
If you have capital losses over $3000, consider generating capital gains to utilize the loss. You can only take a $3000 loss; the rest will be carried forward.
Donate Appreciated Stock
You can avoid the capital gain income on appreciated stock if you donate the stock directly to the nonprofit (501c3). You receive the fair market value for the donation and avoid the capital gain income.
Consider directly donating a part of your retirement account directly to a nonprofit. This can reduce your taxable income if you are over 70 1⁄2, up to $100,000.
Like-Kind Exchanges
If you plan to sell investment real estate, consider doing a like kind exchange. By purchasing a higher cost property, you can roll the gain into the new property and defer the gain until you sell the new property. Know the rules before you do this.
Itemized deductions in most situations will not provide a tax benefit since the standard deduction increased to $12,950 and $25,900.
These suggestions are for discussion purposes. Majority of the items mentioned have very specific requirements. The requirements can be complicated and may yield different results based on your unique situation.
To learn more about your options – please CONTACT us for a “Tax Planning” meeting to understand the full implication of the items mentioned above.
Mary Guldan-Lindstrom, CPA
