OK, straight up, the best possible way to positively impact your tax liability is to have your ducks in a row before the year-end deadline. There are several ways to reduce your liability in advance of submission and you can read about those here.
However, there are two ways you might be able to affect your current year tax return in the new year (so in this case, amending your 2022 liability when the 2023 tax year has started). Both options do have some benefits, IF you have the finances available to move around (but with some restrictions to watch for).
Two strategies to reduce your tax liability after you’ve submitted your return.
- Traditional Individual Retirement Account (IRA) contributions
Depending on your income limits, you may be able to contribute $6,000* (or $7,000 if you’re 50 years old or older) to a traditional IRA which will reduce your tax liability for 2022. These can be made until April 15. So, for 2022’s tax return, you could contribute up until April 15, 2023 and have it count towards the 2022 return.
You should note, restrictions may apply if you (or your spouse, if you’re married) are covered by a retirement plan at work (or other income-deferring benefit plan) and if your income exceeds $129,000 (or $204,00 if you’re filing jointly). More details on these guidelines can be found on the IRS website here.
*Bonus news: in 2023, the cap for IRA contributions will go up by $500 and you may be able to contribute $6,500 (or $7,500 if you’re 50 years or older).
- Health Savings Account (HSA) contributions
If your health insurance plan allows for a health savings account, you could contribute up to $7,300 for a family plan and $3,650 for a self-only plan. These have the same deadline as the IRA contributions above.
The silver lining is both of these have positive knock-on benefits. You’re increasing your retirement account and investing your money in your HSA, to the benefit of a reduced tax liability. In fact, HSAs carry a triple-benefit:
1) being deductible as they’re funded
2) growing in appreciation tax-free, and
3) being distributed tax-free later (as long as it’s for a qualified medical expense).
Meanwhile, the IRA contributions will be taxable to you later in life, but ideally at a time when you’re not at the peak of your earning power (and therefore tax rates).
The most efficient way to improve your tax situation is to get in touch with your accountant in advance of the year-end deadline. As tax experts, we’re well versed in all challenges tax related. Whatever your financial situation, we know there will be some way we can help.
The Revel Difference
Revel’s top recommendation will always be to sit down together and have a pre-emptive meeting; one outside of the last-minute chaos of tax season. This means you know what to expect and, if you’re not going to be able to pay it, we can help you by planning for it.
Don’t delay—start planning for your upcoming tax year today to most effectively save or defer taxes on your next tax return. If you would like to know more, including any further questions about IRA and HSA contributions, you can get in touch with us here.