Tax Tips to Follow before 2024
The end of 2023 is fast approaching. Soon, you’ll need to file your taxes. Tax season doesn’t have to be filled with dread and worry. There is still time to make your 2023 tax filing a more successful one. Follow these tax tips and you may have a better 2023 tax experience.
Table of Contents
Things to do at work
First, you should calculate if you will owe taxes with your current tax status. Armed with this information, you can develop a plan on what to do next.
- Adjust your withholdings. A careful taxpayer would consider optimizing his or her tax withholdings by the year’s end. The IRS has a specific form to use when adjusting how much income you want held back: the W-4. It tells your employer how much money should be kept from each paycheck to cover federal taxes. If you can accurately estimate how much to use per paycheck, you can minimize what you’ll owe at tax time
The passage and execution of the 2022 Tax Cut and Jobs Act made some significant changes that affect our tax liabilities. The personal exemption was eliminated, but both the child tax credit and standard deductions were increased. Review your withholdings and make sure your estimated tax burden matches your annual withholding amount. For help figuring out your W-4 optimizations, the Internal Revenue Service has a withholding calculator.
- If you’ll owe the government, start saving for your tax payment now. You know how to make a big payment hurt less? Break it up into two or more smaller payments and save them to a separate, designated bank account. First, review your tax liability and withholdings, and adjust your withholdings for the current and next tax year if necessary. After calculating your tax liability using your W-4, divide that value by the number of paychecks you receive per year. The amount you end up with is what you should save from each paycheck to cover your annual tax bill. Automatic transfers can be helpful because you don’t have to remember to move money to your tax bank account manually. Finally, always leave the minimum amount required by the bank for this account when you pay your taxes.
- Figure out if your employer matches your 401K or IRA contributions. The money used to fund your 401K and IRA reduces your taxable income, meaning you’ll pay less in taxes. It may make sense to max this out if
- Your employer matches the contribution;
- You’re currently in a high tax bracket (this is more relevant for a 401K).
If you’re less than 50 years old, you can contribute up to $18,500 to your 401K, and $5,500 to an IRA. Those of you who are 50 or older can save up to $24,500, and $6,500, respectively.
More importantly, you want to take full advantage of your employer contributions. Not doing so is leaving money on the table. Your employer’s contributions to your 401K and IRA make these accounts grow faster; you have more money under compound interest. The size of the employer contribution is determined by how much you invest, until it hits a limit. Our advice: max out your contribution so that you get the most from your employer.
Things you can do that affect your home
- Appeal your property taxes. You may be able to negotiate your property taxes by requesting an appeal of your home’s assessed value. To do this, you’ll have to show that the assessor overestimated the value of your home. In many cases, you can initiate the appeal yourself after doing a little research. Just be aware that the appeals process can take several months.
The process can be summarized as follows
- Read the assessment letter, which lists all the information on your property, including the tax rate. It also tells you how much time you have to appeal the assessment.
- Decide if the appeal is worth it. How much are you saving on your property taxes when the home is assessed at the new value?
- Check that the data listed about your home is correct. A typo, an inverted number, or a missed period can work in your favor.
- Look at assessments for comparable properties in your area that have sold recently. Consider size, style, and condition of those homes. You may ask a realtor for this information. Alternatively, this information may be found online, or you can pay an appraiser $350 to $600 to evaluate your home.
- Plead your case to the local assessor. This may be done by phone, but not every assessor may agree to this. You may need to visit the office and present your evidence in person. In filing your appeal, pay attention to the instructions, procedures and deadlines. Provide, at the minimum, the evidence that they ask for.
- Be patient. A review can take one to three months to complete. Your assessor will mail their decision to you.
- If your appeal is unsuccessful, try again. Be warned, secondary appeals may last up to a year, and may require you to go before the appeals board.
- Pay off non-qualifying home equity loans. In past tax years, homeowners could deduct interest from home equity loans. Recent changes mean that very few loans are still eligible for this treatment. Now, only home equity loans which were used to build, buy or improve the home are applicable. It makes no sense to hang on to these loans and the debt they bring. If you are able to, pay off these loans before the end of the year.
Activities to do at your financial institution
- Harvest capital losses so you can use them later. No one likes to lose money in the stock market. However, you may be able to turn that loss into some gain. You are allowed to offset up to $3,000 worth of ordinary income if you suffer a net capital loss for the tax year.
There are rules when it comes to harvesting capital losses. The investments must be sold by December 31st. You can’t sell the stock and immediately repurchase it, nor can you repurchase within +/- 30 days from selling (a wash sale).
- Top up your 401K and IRA accounts with a personal loan. Taking a loan to maximize your 401K and IRA accounts is a good strategy, but it does come with some risk. The advantages include tax savings that could equal the full amount borrowed. This must be done by the specific deadline for each investment vehicle for it to count for 2022.
Taking a loan is not without risks. You still owe interest. To break even, your investment will need a higher rate of return. IRAs and 401Ks are investments, and their value is not guaranteed to grow or even remain constant. Use care when investing with borrowed money.
When preparing your 2023 taxes filing, using these tax tips may be helpful. The best option is to start preparing as soon as possible. This helps reduce any stress that the upcoming tax season may bring. If you do earn a large refund from your 2018 taxes, resist the urge to spend it all. After all, you worked all year for that money. Manage it the intelegency way: pay yourself a bit, and then save and invest the rest!