Procrastinator’s Guide to Year-End Tax Savings, 2023 Edition

The end of 2023 is officially upon us. And while tax season may be the furthest thing from most clients’ minds, for those who have put off executing tax savings strategies, now is the very last minute to act to minimize tax liability for the 2023 tax year. 

Clients who have waited to implement tax strategies still have time to reduce their 2023 tax liability — or boost their refund before next year. Maxing out pretax contributions, giving to charity and investing in clean energy initiatives can all serve to boost refunds or reduce taxable income. While the tax savings options may seem simple, taking action today can have a big impact on clients’ tax liability when April rolls around. 

Maximize Tax-Preferred Savings Contributions

Taxpayers still have time to add to their 401(k)s or health savings accounts. 

In 2023, most taxpayers can contribute up to $22,500 in pretax dollars to an employer-sponsored retirement plan, with taxpayers who are age 50 or older able to make an additional $7,500 catch-up contribution. Taxpayers must make these employee contributions to retirement accounts by Dec. 31, although self-employed individuals with solo 401(k)s have until their tax filing deadline to make contributions as an employer.

Not only will maximizing pretax contributions reduce clients’ taxable income for 2023, but it can also help them take advantage of any employer-matching contributions to help grow their retirement savings.

Taxpayers can contribute up to $3,850 in pretax dollars to health savings accounts in 2023 ($7,750 for clients with family plans). HSA dollars don’t expire at the end of the year like some other types of health savings options. HSA dollars both reduce current tax liability and give clients a tax-free source for paying qualified health expenses. Clients who are age 55 or older can make an additional $1,000 catch-up contribution.

Taxpayers can also contribute up to $6,500 in pretax dollars to traditional individual retirement accounts ($7,500 for taxpayers age 50 and older). However, clients should remember that they have until their tax filing deadline in 2024 to make IRA contributions for 2023.

Charitable Giving 

Clients who are planning to itemize should remember to make their charitable contributions by Dec. 31. For clients who don’t typically itemize, now may be the time to consider bunching charitable gifts that would normally be spread over multiple years into the 2023 tax year to take advantage of the federal tax deduction.

Property that has appreciated significantly in value is particularly beneficial to give — as clients are able to deduct the fair market value of the property on their 2023 return and also avoid paying taxes on the gain. Typically, that gain would be taxed at capital gains rates when sold, but the law carves out an exception when the appreciated property is donated to a qualified charity.

Clients who want to take advantage of the charitable donation for 2023, but still want to spread their gift over a period of years, can consider funding a donor-advised fund. Such funds are sponsored by qualified charities. Clients make a larger up-front donation that’s irrevocable, take the deduction in the current year and retain the ability to advise the donor-advised fund on how to distribute the funds to charity in the future.

Modified Energy-Efficient Vehicle Credits

Clients can also take advantage of expanded tax credits for clean energy choices made before year-end. Clients with adjusted gross income of less than $300,000 (joint returns) or $150,000 (single filers) can claim a credit that equals up to $7,500 for electric or clean vehicles that meet certain requirements and are placed into service by the end of 2023. The credit is up to $4,000 for used e-vehicles put into service by year-end.

Clients should be advised, however, that the credit is taken in the year the vehicle is delivered. That means that clients must receive the vehicle by the end of 2023 to claim the credit on 2023 tax returns. If the vehicle’s delivery is delayed until 2024, the credit can be taken for 2024 — but clients might be better served by waiting to purchase until 2024. Starting next year, clients can take advantage of the credit immediately at the time of purchase.

Conclusion

These tax-saving moves might seem incredibly simple, but they can add significant value as we move into the new year. Of course, clients should be reminded that there’s no time left to wait — and to act now or miss out on opportunities to reduce their tax bill come April.