Start Your Tax Strategies Early: 8 Proactive Steps for 2023 Tax Savings - Part 1

While 2023 might seem far away, the end of the year is an opportune moment to evaluate your finances and implement strategies that can reduce your tax burden next spring.

Effective tax planning isn't a last-minute rush; it's a series of calculated decisions made well in advance. In this series, we'll delve into eight essential actions to undertake in the final quarter to optimize your 2023 tax savings.

Let's dive in.

Maximize Your HSA Contributions

An HSA (Health Savings Account) is a dual benefit – it aids in managing healthcare expenses and offers tax advantages. By allocating pre-tax dollars for future medical needs, you can enjoy tax deductions on your contributions, and the earnings within the account are tax-exempt. To leverage this account's full potential, consider enhancing your HSA contributions before year-end.

For 2023, the contribution limits are $3,650 for individual plans and $7,300 for family plans. Those aged 55 and above can contribute an additional $1,000. By bolstering your HSA, you reduce your current taxable income and secure funds for impending healthcare needs.

Whether provided by your employer or set up independently, HSAs are a valuable tool. Remember, while the funds remain yours indefinitely, withdrawals for non-medical purposes are taxable.

Invest in a 529 Education Fund

Dreaming of supporting your children or grandchildren's higher education? A 529 college savings plan is worth considering. These plans offer state tax deductions for contributions, and while there's no federal deduction, the account's growth is tax-free when used for educational purposes.

In 2023, there's flexibility in contribution amounts to a 529 plan. However, exceeding $16,000 annually (or $32,000 for couples) might trigger gift taxes. By contributing now, you can enjoy tax benefits and invest in your family's educational future. And these funds aren't just for college – they can be used for trade schools and K-12 education too.

Refresh Your Tax Details

For salaried individuals, the W-4 form determines tax deductions from your paycheck. It's vital to revisit and modify it in response to life events like marriage, childbirth, or significant income fluctuations.

By updating your tax details, you can avoid over-deductions and have more immediate liquidity. Conversely, outdated information might lead to tax dues and potential penalties. For guidance, consult a tax expert or utilize the IRS's online tools.

For those on a 1099 contract or running a business, discuss potential structural changes or retirement planning with your tax consultant before year-end.

Strategically Plan Medical Expenditures

Medical expenses can be hefty, but if they exceed 7.5% of your 2023 income, they're tax-deductible. To maximize this benefit, consider scheduling significant medical procedures within this year.

While unforeseen medical needs can't be scheduled, elective procedures can. If you've already met your insurance's out-of-pocket maximum, it's prudent to complete any pending check-ups or treatments. If you anticipate substantial medical expenses next year, it might be worth postponing non-urgent procedures to the following year for tax benefits.

Maintain comprehensive records of all medical transactions to substantiate your tax claims.

Safeguarding Your Family's Tomorrow

Financial management and tax-saving strategies are more than just year-end tasks; they're about making informed decisions that ensure a prosperous future for you and your loved ones.

To fortify your family's future, schedule a complimentary consultation with us. We're dedicated to assisting clients in crafting plans that protect their wealth and family for generations.

Stay tuned for the second installment of our tax strategy series, where we'll introduce more techniques to retain more of your hard-earned money.

This article is a service of Roots + Wings Legal, a Personal Family Lawyer® Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session.

The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.