The best tax-planning resolutions, however, might be the ones we complete before Jan. 1. Leading up to the new year, consider these timely money moves, which could help increase your tax refund or reduce the amount you’ll owe.
Boost your retirement savings
If you have a 401(k) plan through an employer, consider increasing your contribution. Money placed in a 401(k) at any time reduces your taxable income, lowering your adjusted gross income, potentially lowering it enough to help you qualify for other tax credits.
Individuals can contribute up to $22,500 to their 401(k) plans for 2023. If you’re putting money in an individual retirement account, or IRA, the limit on annual contributions is $6,500. If you’re 50 or over, you can put in an additional $1,000 in catch-up funds.
You must contribute to your 401(k) by Dec. 31 for it to count for your 2023 return. But for a traditional or Roth IRA, you can contribute money through April 15, 2024, or the tax filing deadline, and have it apply for 2023.
Use up your FSA funds
If you have a flexible spending account (FSA) for health care or dependent care, you’re expected to use almost all or all of your funds by Dec. 31. Depending on your plan, you might have a grace period to spend a portion in early 2024, or you may be able to roll over some of your unspent funds into next year’s FSA. Check your plan guidelines to make sure, but either way, you don’t want to lose money already withdrawn from your paycheck.
You might be surprised what’s eligible as a qualified expense under your FSA. Use this time to stock up on over-the-counter medications, sunscreens, eyeglasses, prenatal vitamins and more to spend down your FSA. If you’ve been putting off medical appointments or procedures, complete them before the end of the year. Other options include refilling eligible prescriptions by Dec. 31 and prepaying any childcare or summer camp expenses if you have a dependent care spending account.
How’s your withholding?
If you got married, divorced or had a child in 2023 – among other life changes – you may need to adjust how much your employer withholds from your paycheck for federal taxes. Other big changes, such as buying a home or getting a raise, might also call for a withholding change.
Contact your employer and fill out a new W-4 form to change your withholding. This will help ensure you’re paying enough from each check to avoid a large tax bill in 2024 – or help you avoid paying too much.
Will you itemize?
If you think your qualified expenses will be more than the 2023 standard deduction ($13,850 for most singles, $20,800 for heads of households and $27,700 for most married couples filing jointly), you might get a larger return or pay less if you itemize your deductions. Estimate how much you can potentially deduct, and see if you can find additional expenses before Dec. 31 to add to that list.
You may also want to consider making a donation to your favorite charity – a percentage of your cash and non-cash charitable giving is tax-deductible. Many nonprofits have the greatest needs during the holidays, so additional donations you make this season will go a long way toward helping others, and yourself.
Start the countdown
Take advantage of this crucial window of opportunity to maximize your 2023 tax return next year. While there’s no bad time to take steps to cut your tax bill, November and December offer a final chance to make adjustments before closing out the tax year.
Year-end tax planning is one of the best new year’s resolutions you can make – just remember to get it done before the clock strikes midnight.
Content sponsored by JPMorgan Chase & Co.
JPMorgan Chase & Co., its affiliates and employees do not provide tax, legal or accounting advice. This story is for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.
