The time for income taxes is closing in, and careful planning could help you receive a bigger tax refund.
We hope you remember that income taxes are due April 15, 2024. While you have another two months, it may be beneficial to check your financial scenario and make necessary adjustments to boost your tax refund or liability for last year.
We will discuss a few tax strategies that help lessen tax liability, but these steps would have worked best if you had checked before 2023 ended. However, you can put some effort into reviewing your tax situation and expect better results.
Double-check your Paycheck for Tax Withholding
Since the United States follows a pay-as-you-go income tax model, freelancers must pay estimated taxes quarterly, and some employers withhold money from their employees’ paychecks. Result: some people fail to pay taxes during the year and have to pay a penalty at tax time.
Imagine you are an employee, and your employer determines the amount withheld from your paycheck by your W-4 tax form, including your filing status and estimated tax deductions. While the end of 2023 would have been a good time to review your W-4 and existing withholdings, you may still check it.
Use the IRS’ Tax Withholding Estimator tool to evaluate your existing withholding and projected tax refund to tweak your W-4 form. Submit an up-to-date W-4 form to your employer, and they must institute the changes before the first payroll period starts, which is approximately 30 days after your W-4 submission (sometimes longer).
Maximize Your Retirement Account Contributions
One of the most productive tax deductions comes from retirement funds like IRAs and 401(k) accounts. It is because you can decrease your tax bill while developing something for the future. Sounds affordable? Maximize your possible contributions to any retirement account. However, it would have been best if you could have done it before the end of the previous year.
$22,500 was the deduction limit for 401(k) contributions for 2023 taxes without counting your employer’s contributions. An employee in the 24% tax bracket can get nearly $5,000 off their tax bill simply by saving money for the future. Turning up your regular 401(k) percentage for the final pay period of 2023 could have been perfect to boost your potential retirement deductions.
Are you over 50? You can contribute more to your 401(k) with catch-up contributions, which was about $7,500 per year or $30,000 in 2023.
However, it would only be useful if it was permitted by your 401(k) plan. You do not even need to be behind on your 401(k) contributions to make extra deferrals to your account.
In the case of IRAs, your maximum amount of tax-deductible contributions for 2023 was $6,500 or $7,500 for those over 50. The amount deductible from your taxes depends on your income and whether you have a work-provided retirement plan.
Strategize Business Expenses
Are you a freelancer or are self-employed? You could save considerable tax money by deducting business expenses. How would it help if done before the previous year?
For instance, you could have ordered supplies you needed for several months in 2024 by December 2023 and paid for them instead of buying monthly supplies each month now. Your deduction timing depends on whether you use an accrual basis or a cash method of accounting. However, front-loading business expenses for the next year is a great way to reduce taxable income for the current year.
Conclusion
Do not be disheartened about having missed this checklist before your tax season. You still have some time to impact your taxes positively. Additionally, keep these tips in mind and check them before 2024 ends so your income taxes are better in 2025.
Also Read: When Can You Start Filing Taxes 2024?