5 Year-End Tax Saving Strategies

Sep 28, 2023 2 min read

Making smart financial decisions before the year’s end can impact what you owe in April (and how much you’ll have to save for your other goals, like retirement). Put these five tax-saving strategies into effect before the end of the year.

How to Save on Taxes Before the New Year

  1. Defer Your Income

    You only pay taxes on income earned this year. If you’re self-employed, consider delaying billings until next year to help lower your upcoming tax bill. Deferring a year-end bonus could also reduce your taxable income. Remember, you’ll have to pay this tax eventually, so deferring your income is only a smart income tax savings strategy if you expect to be in the same (or lower) tax bracket next year.
  2. Ramp Up Your Retirement Savings

    This year you can put away more (tax-deferred) income into your retirement accounts. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government's Thrift Savings Plan is increased to $22,500 ($30,000 if you're age 50 or older), while limits on contributions to traditional and Roth IRAs increased to $6,500 ($7,500 if you're age 50 or older). The more you invest into retirement now, the lower your tax bill will be in April.

    If you’re age 72 or over, now is the time to check your IRA distributions. The IRS requires you to start taking regular minimum distributions from your traditional IRA account. Failing to withdraw sufficient funds will trigger a significant tax bill.
  3. Squeeze In as Many Deductions as Possible

    All charitable contributions and business expenses accrued before the year’s end count as tax deductions. Unreimbursed medical expenses are also tax deductible so long as they exceed 7.5% of your adjusted gross income. If you’re close to the threshold, schedule services like dental cleanings and eye exams, or purchase new eyeglasses to receive the full deduction. Remember to keep your receipts.

    You can also prepay certain bills, including tuition and property taxes. Increasing your deductions is one of the most reliable tax reduction strategies to help decrease the amount you’ll pay in taxes.
  4. Boost Your HSA

    If you have a health savings account (HSA) and a high deductible health insurance plan, you can claim tax deductions for your contributions to your HSA. Contribution limits are $3,850 for individuals and $7,750 for families, an increase from previous years. You can contribute an extra $1,000 if you’re over 55. Contributions are made with pre-tax dollars and can be withdrawn tax-free for qualified medical expenses. If you're looking to put more money in an HSA for 2023, you have until the due date for 2023 federal income tax returns, which is April 15, 2024.
  5. Contribute to Your FSA

    Employer-sponsored flexible spending accounts (FSA) help cover out-of-pocket healthcare expenses. And while you can’t deduct FSA contributions, the accounts are funded with pre-tax dollars, which reduces your taxable income. The limits are $350 per year, per employer, which can be used to cover deductibles, co-payments, prescription medications and qualified medical equipment. Just be sure to double check your account balance and spend any unused funds before the new year.

Need Help Managing Your Finances?

Maximize your dollar by connecting with your local Farm Bureau agent or advisor and talking about your financial goals today.

Neither the Company nor its agents or advisors give tax, accounting or legal advice. Consult your professional advisor in these areas.

Source: IRS.gov

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