I’m sure by now you’re thinking, “Tom can you please stop blogging about taxes, they suck.” Yeah yeah yeah they do, buttttt tax day is one month away and I’ve got some tips that may save you money but first here’s a 100% true tax story from my childhood:
I was about 12 years old when this happened and FYI every year my birthday is April 19th, right after Tax Day (April 15th usually). This particular year I got this MASSIVE Creepy Crawlers kit which would have been an AMAZING gift, except I stopped playing with CCs about 2 years earlier. I also got a left-handed hockey stick but I am definitely not left-handed (pretty sure my parents had no idea there were left or right-handed hockey sticks). Upset and ungrateful, I asked my parents why I got such bad birthday gifts and my dad delivered a line I’ll never forget, “Sorry son, we had to pay our taxes and didn’t have any money leftover for your birthday”. HEYO! In hindsight, it’s one of the funniest things my dad has ever said but I definitely cried and was scarred.
So, let’s look at a few ways to lower your tax bill, keep more of your hard-earned money, and avoid buying Creepy Crawlers two years after the fad ended…
1. You have until Tax Day to make additional contributions to pre-tax accounts like your 401k, 403b, and HSAs (where applicable). That’s right, contributions to these accounts can be made for another 4 weeks and still impact your 2023 taxes! People often don’t understand how this works but it’s really straightforward. In a basic example, putting an additional $1,000 into a pretax account can save you $200 on taxes owed if your effective tax rate is 20%. It’s a double whammy: you’ve forced yourself to save $1,000 more dollars AND you’ve paid $200 less in taxes.
2. You want to review your 2023 transactions to see if any of them qualify for deductions or credits. Did you fund a 529 for your child or pay for childcare? Did you make energy efficient improvements to your house? Federally, these deductions and credits are pretty straight forward but states can really vary so it might be worth looking into your specific state for opportunities to save on your taxes.
3. Unfortunately, my last few tax savings come with 12/31 deadlines, meaning that doing these things won’t help your 2023 tax filings. But they’re useful to know for 2024: Harvesting investment losses is a great way to sell some stocks to free up capital and to offset any investing gains you might have. Humans are sometimes foolish to sell ‘bad investments’ just because they don’t want to realize a loss, but doing so may be a good thing to offset gains and lower your tax burden. Another way to lower your tax bill is to make a contribution towards your kids 529 accounts, but they must be made by 12/31 to count (whereas 401k and HSA contributions can be made up to Tax Day). Always check to see if your state offers this deduction (my state of Maryland does up to a $5,000 limit).
Most people think of taxes one time a year but really we should be looking at our tax plan 3-4 times per year. If you’re not doing that, or you don’t have a tax plan, it’s time for some adulting. Go schedule a 30-minute call and see if working with me makes sense for you and your family. I legally cannot say that I will guarantee that I’ll make you money or that I can guarantee that I’ll save you money. I’m not a tax professional, CPA, or EA. But I promise I’ll always have your best interests at heart and work as a fiduciary who truly cares about every client I have. Come talk to me about finances and see if I can build your confidence in your financial future. I promise I won’t sell you a left-handed hockey stick unless your kid is actually left-handed!
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