Let’s all breathe a collective sigh of relief — this year’s filing season is finally over. Now that tax filing is behind you, what could you have done differently?
One common mistake taxpayers often make is waiting until tax time to think about their taxes. But by thinking ahead and making some financial tweaks now, you’ll be better equipped to save time and money when filing your tax return next year.
Here are our top tax tips and tricks to follow that could enhance your tax savings in 2023.
1. Revisit your Form W-4.
Not happy with your tax bill or refund amount this year? Adjusting your W-4 is a simple way to ensure you control how much tax is withheld from your paychecks.
If you recently started a new job, you might have noticed that the W-4 form looked slightly different. The IRS simplified the W-4 form starting in 2020 to improve employee withholding accuracy and get you close to “breaking even” on your taxes. Ideally, this would mean your tax refund or bill after filing would be as close to zero as possible.
However, you still have the power to decide if you want more money in your refund or more money in your paycheck. Use our Refund Booster1 to learn how you can tweak your W-4 to work better for your financial needs.
2. Maximize your retirement contributions and other employee benefits.
Try to max out any tax-deferred retirement, such as an IRA or employer-sponsored 401(k). Just make sure not to go above the contribution limits — that could mean some hefty tax penalties. And if your employer offers to match a percentage of your 401(k) contributions, don’t leave that money on the table!
It’s also a good idea to take advantage of health savings accounts (HSA) and flex spending accounts offered by many employers. HSAs and flex plans allow you to set aside tax-deferred or tax-free savings to spend on qualifying expenses like medical care (or sometimes childcare).
Like retirement accounts, these plans also have maximum contribution limits. For tax year 2022, filers can contribute up to $2,850 to a flex spending account or $3,650 for an individual HSA ($7,300 for a family HSA).
3. Lose stocks that aren’t working for you.
Are there any stocks that have been weighing down your investment portfolio? Consider selling them this year and using the losses to offset any realized gains you made or reduce your taxable income. This strategy is called tax-loss harvesting,
You can deduct up to $3,000 in realized losses per year (or $1,500 each for those married filing separately). But if your losses total more than the annual limit, you can carry over any excess into the next tax year.
One thing to keep in mind — you can’t sell a stock just to deduct the loss and then turn around and immediately repurchase it. This is called a wash sale, and the IRS won’t allow you to claim the loss for tax purposes if you repurchase the stock (or a “substantially identical” investment) within 30 days.
4. Turn your hobby into a side hustle.
The gig economy is growing and being part of it comes with some handy tax benefits. Whatever your hobby might be, monetizing it could open the door to tax advantages like the home office deduction and more. Plus, you’ll be able to write off the cost of any supplies and potentially a portion of your utilities and internet costs.
5. Plan your purchases ahead of time.
You can increase the number of tax breaks you qualify for by making any tax-deductible purchases before the end of the year. Once Jan. 1 rolls around, you’ll have to wait until the following year to reap any tax benefits.
For instance, if you know you need a high-cost medical procedure, see if you can schedule it before Dec. 31 to claim it as an unreimbursed medical expense on your taxes. If you’re a homeowner and an itemizer, you could make an extra mortgage payment to increase your mortgage interest write-off next year. If you’re a small business owner or self-employed, make any big business purchases before December ends to deduct the expenses on your tax return.
6. Save on child and dependent care.
If you have a child under 13 years old and pay someone to take care of them while you work or look for work, you may qualify for the child and dependent care tax credit. This tax benefit is calculated based on your adjusted gross income, and it allows you to deduct a certain percentage of qualifying childcare expenses.
And don’t forget about these other tax credits available for families with children!
7. Stay in the know about tax season updates.
Tax law changes can easily fly under our radar if we aren’t paying attention. This was especially true in 2020 and 2021 due to the pandemic’s temporary tax changes.
Luckily, we’re here to make things easier for you. When you sign up for our newsletter, we’ll provide you with timely tax updates and financial news delivered to your inbox every month.
8. Use TaxAct as your tax professional.
If you’re intimidated by DIY tax preparation software, don’t be! When you use TaxAct® to file your federal tax return, we’ll walk you through the filing process by asking you interview questions and then use your answers to determine which tax deductions and credits you might qualify to receive. We’ll provide you with all the proper forms and documentation to help you e-file with confidence and ease.
Another great perk you’ll receive is our free My TaxPlan2 tool. Once you’ve filed, we’ll analyze your return and create a customized downloadable report of opportunities to help you save money and increase your tax refund next year.