There’s Still Time to Reduce Your 2023 Taxable Income: 3 Tips to Consider

2023 may be behind us, but that doesn’t mean it’s too late to take steps that could help lower your taxable income before Tax Day in April. Let’s go over a few options you may want to consider before putting together your 2023 tax return. 

A quick note: Taxes can be complicated, and everyone’s financial situation is different. It’s always a good idea to reach out to a tax professional for help if you have specific questions about your tax liability, filing requirements and any applicable deadlines.

1. Consider maximizing your traditional IRA contribution if you can

If you have a traditional IRA, you can make contributions for the 2023 tax year up until April 15, 2024. As a reminder: For the 2023 tax year, the maximum annual IRA contribution limit is $6,500 (or $7,500 if you’re age 50 or older). Keep in mind that this is the total amount of contributions you can make to all of your traditional IRAs and Roth IRAs.

So if you haven’t hit the limit yet, think about maximizing your contribution if you can. Why?

Contributions to a traditional IRA may be tax-deductible up to a certain dollar amount if you’re eligible to claim the deduction, which could help you lower your overall taxable income.

Your ability to deduct your traditional IRA contributions depends on several factors such as your income, filing status, and whether you’re covered by a workplace retirement plan. Visit this IRS webpage for more information about deduction limits.

Good to know: Contributions to a Roth IRA are not tax-deductible.

2. Don’t forget about HSA contributions

A Health Savings Account or HSA is where you could put money away to help pay for qualified medical expenses, such as prescriptions and doctor visits. Individuals with a High Deductible Healthcare Plan (HDHP) can open and fund an HSA if they meet certain requirements as outlined by the IRS.

Contributions to an HSA may also be tax-deductible, which, again, could help lower your taxable income. For the 2023 tax year, the annual contribution limit to an HSA for an individual with self-only coverage is $3,850 (and $7,750 for family coverage). If you’re 55 or older, you could contribute an additional $1,000.

If you haven’t maxed out your HSA, you still have time to make contributions. Even though the 2023 calendar year may be over, you typically have up until Tax Day to make HSA contributions for the 2023 tax year.

3. See if itemizing deductions makes sense for you

Many taxpayers choose to take the standard deduction when filing their tax returns.

That being said, you may not want to overlook the option of itemizing your deductions. Depending on your situation, sometimes, it might make sense to itemize if you think the total of your itemized deductions will be greater than the standard deduction.

For the 2023 tax year, the standard deduction is $13,850 for single filers; $20,800 for heads of household; and $27,700 for those married filing jointly.

Of course, itemizing your deductions usually takes a little more time and work, but it may be worth it if it can help further lower your taxable income.

Some examples of common itemized deductions include:

• State and local income, sales and property taxes
• Mortgage interest
• Charitable contributions