As the time to file your 2023 tax returns inches closer, it’s crucial to arm yourself with strategies that can save you money. Whether you’re aiming for a smaller tax bill or a larger refund, these lesser-known tax tips could make a significant difference. Let’s dive into some effective strategies that might apply to your situation.
Deductible Traditional IRA Contributions, Even If You Don’t Work
Think you can’t make a deductible traditional IRA contribution without earned income? Think again!
If your spouse is the primary earner, you can still make a deductible IRA contribution for 2023 – up to $6,500, or $7,500 if you’re over 50. Remember, for these contributions to be deductible, neither you nor your spouse should be covered by an employer-provided retirement plan.
If you are an active participant in a company plan, the traditional IRA deduction phases out when your modified adjusted gross income (AGI) is $116,000-$136,000 (for joint filers and surviving spouses) or $73,000-$83,000 (all other taxpayers).
Remember, to be deductible for the 2023 year, the IRA contribution must be made no later than the 2023 tax return filing due date (April 15, 2024).
Converting Roth IRA Contributions into Deductible IRA Contributions
Did you contribute to a Roth IRA in 2023?
While these contributions aren’t deductible, you can convert them into traditional IRA contributions if you meet certain income limits.
This “recharacterization” mechanism could be a game-changer if you realize you need the deduction for your taxes.
Tax-Free Gain from Rental Property
Selling a rental property that was once your primary residence? You might be eligible for a tax-free gain.
If you’ve lived in the property for at least two years out of the five before selling, you could exclude up to $250,000 of gain ($500,000 for joint filers) from your tax bill, subject to certain conditions.
Moving Expense Deduction for Military Families
Moving expenses aren’t deductible for tax years 2018-2025, with one exception: the rules continue to apply to U.S. Armed Forces members on active duty who move under military order and incident to a permanent change of station.
- Moving and storage expenses for U.S. Armed Forces members, their spouses, and dependents are not counted as gross income if provided in kind or reimbursed.
- This non-taxable benefit extends to moving and storage expenses for spouses and dependents, even if they move to or from a different location than the service member.
- These rules apply without considering the usual distance or time tests typically required for moving expense deductions.
Tax-Free Partial Annuity Swaps
Swapping part of your annuity contract for another can be done tax-free, under certain conditions. This could be a strategic move if you’re looking to improve your investment’s yield.
Tax Breaks for Small Business Stock Sales
Selling qualified small business stock? You could be looking at significant tax breaks. If you meet certain conditions, such as holding the stock for over five years, you might completely exclude the gain from your income.
Medical Expense Deductions from Home Improvements
Certain home improvements for medical purposes, like lifts or therapy spas, can qualify as deductible medical expenses. This can be a substantial deduction if the improvement cost exceeds the increase in your home’s value.
Note, however, that medical expenses can be claimed on Schedule A, Form 1040 only to the extent they exceed 7.5% of your AGI.
Deducting Business Property through Employee Pay
Starting a side business? Your employee salary can help you deduct the cost of business property, like computers and office equipment, even if your business isn’t profitable yet.
Caveat to note: This is applicable as long as your salary in that year at least equals what you spent on the qualifying property.
Maximizing Auto Deductions for Business
If you’ve used a vehicle for business in 2023, you have two options for deductions: standard mileage (65.5 cents per mile in 2023) or actual expenses, including depreciation. Each method has its own benefits and limitations, so choose wisely.
Thus, for passenger autos placed in service in 2023, depreciation deductions are subject to a maximum of $20,200 for passenger autos, smaller trucks, or vans, if the vehicles are used more than 50% for business and otherwise eligible for bonus depreciation (most vehicles are).
If the vehicle is not eligible for bonus depreciation the limit is $12,200 (in 2023) for other passenger autos, smaller trucks, and vans.
If the vehicle is used less than 100% for business, the portion of the expenses attributable to non-business use is not deductible.
Donating IRA Distributions to Charity
For those over 70½, donating IRA distributions to charity can be tax-free, up to $100,000. This strategy benefits both itemizers and non-itemizers.
By excluding the IRA distribution from income, the provision provides a tax benefit to itemizers and non-itemizers alike. The IRA qualified charitable distribution also allows for distributions to charities (up to $50,000) through charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts.
Wrapping Up: Tax Planning for Savings
Tax planning can be complex, but being aware of these strategies can lead to substantial savings. For personalized advice, consider consulting with a tax professional. Remember, a little bit of planning can go a long way in reducing your tax bill or increasing your refund.
If you have questions, contact us to discuss your situation.
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