4 Tax-Smart Moves You Can Still Make for 2023

We may have embarked on a new year, but it's not too late to do some last-minute tax planning before filing your 2023 tax return. Here are four tax-smart moves you can still make before Tax Day.

One way to potentially save on your 2023 taxes and put away money for later is to contribute to a traditional individual retirement account (IRA).

If you qualify, these accounts can give you an upfront tax deduction on your contributions, and your earnings can grow on a tax-deferred basis. For 2023, you can contribute up to $6,500 to a traditional IRA (plus a $1,000 catch-up if you're age 50 and over), and you have until Tax Day to do so.

Because contributions to a traditional IRA reduce your taxable income dollar for dollar, they could be enough to drop you into a lower tax bracket. Given that some gaps between tax brackets are quite large—the gap between the 22% and 12% brackets, for example—those savings can be significant.

Contributing to a Roth IRA, on the other hand, won't lower your taxable income today, but it might help you save on taxes in retirement. In fact, in some cases, a Roth may make more sense than a traditional IRA. For example, if you're in a low tax bracket today but expect to be in a higher tax bracket when you withdraw the money, a Roth could be a good option. But remember, Roth IRAs contributions are subject to income limitations. 

If you're not qualified to make tax-deferred contributes to a traditional IRA and your income's too high for a Roth IRA, you may want to consider a "backdoor Roth."

As a small business owner, you may be eligible for a traditional or Roth IRA. But you might be able to save even more by opening a Simplified Employee Pension (known as a SEP IRA), if you meet certain requirements.

Because of the SECURE 2.0 Act, contributions to SEP IRAs can now be made with either pre-tax dollars (like with a traditional IRA), or after-tax dollars (to a designated Roth account, if allowed by the plan). If you were self-employed in 2023, you can generally set aside up to 20% of your net income or $66,000, whichever is less. If you had employees, you can contribute to their retirement accounts as well—up to 25% of their compensation or $66,000.

You have until the due date of your return (including any extensions) to make such contributions for 2023.

Health savings accounts (HSAs) offer a triple tax advantage: Contributions generally reduce your taxable income, any growth on money invested in the HSA is tax-free, and withdrawals are tax-free as long as they're used for qualified medical expenses.

Some savers may not realize they have until Tax Day to contribute to their HSA for the previous tax year. For 2023, individuals can sock away up to $3,850 in tax-free HSA contributions, while families can save up to $7,750. If you're over age 55, you can set aside an additional $1,000.

If you haven't maxed out your HSA for 2023, closing the gap before the filing deadline could result in a lower tax bill.

Because HSAs let you roll over your savings from year to year, that money will be available to you if you need it for medical expenses. 

For 2023, if you're a single filer and your deductions exceed $13,850 (or $27,700 for married couples filing jointly), then itemizing would save you more money than the standard deduction. Just be sure to keep receipts for each expense you're itemizing, and check with an accountant if you're not sure which costs are deductible.

Mortgage interest may be an option for some taxpayers. If you bought your home after December 15, 2017, you can deduct interest on up to $750,000 of indebtedness. And the limit for homes bought on or before that date is still $1 million. 

You may also be able to deduct a combined total of $10,000 in property tax, state and local income tax, or sales tax paid in 2023. The sales tax deduction applies to all purchases made during the year, including food, clothing, home improvements, or a new car. If you live in a state with no or lower income tax, sales tax might get you a bigger tax break than the state and local tax deduction.

Finally, medical expenses that exceed 7.5% of your adjusted gross income (AGI) can also be deducted. 

With taxes, it's always best to double-check your math and assumptions. If you have questions, talk to a tax professional. Mistakes can quickly erode the potential benefits of tax-saving moves, especially if you miss IRS deadlines. Well before Tax Day, be sure to:

• Determine if a traditional IRA, Roth IRA, or SEP IRA is right for you and how to get the most out of one.
• Check with your employer or healthcare/HSA provider to find out about opening an HSA account if you're part of a qualified high-deductible health plan or increasing your contributions if you haven't hit the annual limit.
• Gather any documents, forms, or receipts you'll need to help you decide if you should itemize your deductions.