As the federal tax deadline approaches, it is crucial to take advantage of any last-minute tax-saving opportunities available. One option to consider is making a pretax individual retirement account (IRA) contribution. This can help reduce your adjusted gross income and potentially lower your tax liability. With a deadline of April 15 for 2023 deposits, you can contribute up to $6,500, with an additional $1,000 for investors age 50 and older. This contribution allows for an immediate deduction, regardless of whether you itemize tax breaks on your return.
Another strategy to consider is making a Roth IRA contribution. While this does not provide an upfront tax break, the contributions grow tax-free. For individuals in the 10% or 12% tax bracket, a Roth IRA may be a more beneficial option. Additionally, married couples filing jointly can take advantage of a spousal IRA, which allows nonworking spouses to contribute to a separate Roth or traditional IRA. These options are often overlooked but can provide valuable tax advantages.
A lesser-known but advantageous option for tax savings is making a 2023 health savings account (HSA) contribution. This is particularly beneficial for individuals with a high-deductible health insurance plan. HSAs offer upfront deductions for contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Investors aged 55 and older can save an extra $1,000 through an HSA contribution. It is important to consider the various tax benefits of an HSA before making a contribution.
Before making any last-minute tax-saving decisions, it is essential to evaluate your short and long-term financial situation. Consider possible tax consequences and weigh the benefits of different contribution options. Consult with a financial advisor to determine the most suitable strategy based on your individual circumstances. Taking proactive steps to maximize your tax savings before the deadline can result in a lower tax bill and potentially increase your refund. Be sure to explore all available options and make informed decisions to optimize your financial situation.