Tax preparation season is fast-approaching, which means it’s the perfect time to button up last year’s taxes and start thinking about how you can plan for the year ahead. Here, Marie McGrath, CPA and senior tax manager at Leelyn Smith, provides suggestions on what moves you can still make to improve your situation for the 2023 tax year as well as the tax-planning steps you should consider to make the most of 2024. 

What’s still on the table for 2023?

Even though the calendar says it’s 2024, you have up until April 15—the tax filing deadline—to take certain steps that can affect your tax returns for 2023. Here are a few things you can still do for the 2023 tax year:

• Max out your IRA. If you haven’t contributed the full amount to your traditional or Roth IRA, you still have time. For the 2023 tax year, you can contribute up to $6,500 to your IRA, or $7,500 if you’re 50 or older. In 2024, the contribution limit rises to $7,000, or $8,000 for those 50 or older. Traditional IRA contributions can lower your taxes, depending on your income; Roth IRA contributions aren’t deductible, but earnings grow tax-free when you meet certain conditions.
• Fully fund your HSA. If you have a high-deductible health insurance plan, you may be able to contribute to a Health Savings Account (HSA), which lets you pay for qualified medical expenses with tax-free dollars. For 2023, the HSA contribution limits are $3,850 for single coverage and $7,750 for families; those 55 and older can contribute an additional $1,000 each. If you haven’t already contributed the maximum amount for 2023, you may still be able to max-out your HSA contributions.
• Consider a “backdoor Roth” conversion. If your income is too high to contribute to a Roth IRA but you’d like the benefit of tax-free earnings, you may employ a “backdoor Roth” strategy. This involves contributing money to a new traditional IRA and then immediately converting the funds to a Roth IRA.
• Organize your tax documents. To prepare for the 2023 tax preparation process, you’ll want to start collecting your tax documents, including W2 forms and the 1099 forms used to report self-employment and investment income, such as interest payments and dividends. We recently shared some information with you on our new tax prep tool, TaxCaddy, which allows you to upload tax documents to Leelyn Smith without going through the hassle of printing and transporting documents. This system is more secure, provides more certainty of quick delivery, and helps you get started working with your tax advisor sooner. In the past, many clients waited until the last minute to gather information and file taxes, which can lead to unnecessary stress. It’s our goal to limit your anxiety in these matters, and TaxCaddy is one more tool to help ensure you have a pleasant tax-preparation experience.

Looking ahead to 2024.

As you begin thinking about your tax situation for 2024, you may want to consider the following actions:

• Check your withholdings. If you find that you owe taxes when you file, you may be withholding too small of an amount from your paychecks. Conversely, if you’re regularly getting a big refund, you may be withholding too much. When looking at your paystubs, you should be able to determine what percentage of your income is being withheld for taxes. By comparing this amount with your current tax bracket, you can tell if the right amount is being taken out. (Find your tax bracket here.)
• Adjust your estimated payments as needed. If you’re self-employed—perhaps as a sole proprietor or as an S Corporation—you likely need to make quarterly tax payments. You may estimate your payments at the beginning of the year, but you can adjust them up or down each quarter, depending on your income stream.
• Track your business expenses carefully. If you’re self-employed or a business owner, be diligent about tracking your expenses and separating them from your personal expenses. In addition, make sure you have the right accounting system in place for your needs.
• Review your retirement plan contributions. Many Americans have insufficient savings for retirement. One of the most direct ways to help build adequate resources for a fulfilling retirement is to regularly contribute as much as possible to a 401(k) or similar tax-advantaged retirement plan. Be sure to consult with your advisor to determine the strategy that works best for you.
• Considerable charitable “bunching.” Recent changes in the tax laws resulted in a much higher standard deduction, causing somewhat of a disincentive for people to make charitable gifts if they didn’t have enough other deductions to push them over the standard deduction limit. However, through a process called “charitable bunching” (sometimes referred to a “charitable looping”), you may be able to circumvent this concern. For example, instead of giving $10,000 a year to a charity, you could give $40,000 in one year and deduct your contribution, and then not make any gifts for the next three years, while claiming the standard deduction. And if you made the gift in the form of a donor-advised fund, you could still direct the fund to spread the $40,000 over four years, helping the chosen charitable organization(s) receive a predictable income stream. Further, if you fund your gift with appreciated securities, you may avoid the capital gains tax that would be due if you eventually sold the securities yourself. 

Start planning today.

As you seek to get organized for the 2023 tax preparation season and consider your tax planning needs and goals for 2024, we recommend meeting with your Leelyn Smith advisor if you have specific concerns related to your situation. The sooner you get started, the more options you may have. Don’t hesitate to reach out to your advisor to get the discussion started today.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59^½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.