Tax season was over for most people a month ago, with many already getting back their returns and refunds. It’s a good time to think about next year since you can look at your 2022 return to help you plan for the next filing.
Here are some ways to save on your taxes next year.
1. Contribute to a health savings account
Funding a health savings account is a tax-advantaged way to save on taxes and save for retirement at the same time. They are meant to help people save for medical expenses, including copayments, dental, and long-term care. To open an HSA account, you should have an HSA-qualified high-deductible health plan. You must also not be enrolled in Medicare. HSA contributions are immediately tax-deductible, and can be invested and earn free of taxes.
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2. Increase contributions to retirement accounts
If you are still working and contributing to a traditional IRA, 401(k) or a 403(b), consider giving the maximum contribution possible to considerably lessen your taxable income. These accounts have the following contribution limits for 2023.
- Traditional IRAs: $6,500, or $7,500 if you are age 50 and above
- 401(k) and 403(b)s: $22,500, or $30,000 if you are age 50 and above
3. Determine the accuracy of your tax withholding
Tax refunds for 2022 were higher by almost 8% on average compared to the previous year, but this was mostly due to tax credits given as part of pandemic relief. The best way to avoid being blindsided by a high tax bill next year is to find out exactly how much tax should be withheld from you. You can do this by speaking to your accountant or financial advisor, consulting your human resources department, or using the tax withholding estimator of the IRS.
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4. Do research on available tax credits and tax deductions
There are various tax credits and deductions available to individuals of different filing statuses. Some are well-publicized, such as the child tax credit, but there are others that are less known that could be applicable to your particular situation. Refer to the IRS website’s list of available credits and deductions, which offers a lot of information. This list does change often, so consult it regularly and consider speaking to a tax professional to help you determine which ones you are eligible for.