The deadline for filing your 2023 tax return is just two months away. Although the end of the year is the deadline for most of the tax moves you can make, there are a handful that you can take advantage of right up until this year’s April 15th tax deadline.

Conventional IRA

The most important is that you can still make a 2023 contribution to an Individual Retirement Account (IRA) to reduce your 2023 taxable income. The amount of deduction you can take depends on your income, your age, and whether you or your spouse are covered by a retirement plan at your job.

If neither you nor your spouse have coverage by a work retirement plan, you can take the maximum deduction, according to the Internal Revenue Service (link). Those limits are the greater of $6,500 ($7,500 if you’re age 50 or older), or up to your taxable compensation for the year.

If you are married, over 50, not covered by a work retirement plan, and happen to be in the 24% tax bracket, you could lower your federal income taxes by $3,600 by contributing the maximum for you and your spouse. State income taxes are usually also exempted from these contributions.

Over time, these IRA contributions will grow tax-free until you withdraw them. However, when you retire, the withdrawals you make will be taxable. If you believe your income tax rate will be higher in retirement than it is today, then it may make more sense to make your contributions into a Roth IRA.

Roth IRA

A Roth IRA is an IRA that allows qualified withdrawals on a tax-free basis if certain conditions are satisfied. They operate similarly to conventional IRAs, and have similar contribution limits and certain qualifiers. As with a conventional IRA, you still have until April 15th to make a contribution for the 2023 tax year. The tax treatment is the primary difference in the two accounts.

One situation that could favor the conventional IRA over the Roth is if you presently live in a state with a high-income tax, but you expect to live in a state with no income tax at retirement. That way you can get the tax deduction today, but you won’t (depending on the state) pay any state income taxes on withdrawal.

HSA

A final category you can take advantage of up until the tax deadline is the Health Savings Account (HSA). I covered HSAs previously in The Best Savings Vehicle You Will Ever Find. In many ways they are superior savings vehicles to conventional and Roth IRAs. If I could only maximize one type of savings vehicle for a year, it would be my HSA.

In any case, it’s probably a good idea to talk to your accountant to see if any of these deductions make sense prior to the filing deadline. Your individual circumstances play a significant role but considering the limited options for 2023 tax moves at this point, it is worthwhile to give them consideration.

Looking Ahead

Finally, it’s not too early to start thinking about the 2024 tax year. These changes will apply to income reported on tax returns filed in 2025. These adjustments ensure that taxpayers are not inadvertently pushed into higher tax brackets due to cost-of-living increases.

Below is a summary of the key tax changes from the IRS for the year 2024.

Standard Deduction

• For married couples filing jointly, the standard deduction rises to $29,200, an increase of $1,500 from 2023.
• For single taxpayers and married individuals filing separately, the standard deduction increases to $14,600, up by $750 from 2023.
• Heads of households will have a standard deduction of $21,900, which is $1,100 higher than in 20231.

Marginal Tax Rates

• The top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 (or $731,200 for married couples filing jointly).

Other tax rates include:

• 35% for incomes over $243,725 (or $487,450 for married couples filing jointly).
• 32% for incomes over $191,950 (or $383,900 for married couples filing jointly).
• 24% for incomes over $100,525 (or $201,050 for married couples filing jointly).
• 22% for incomes over $47,150 (or $94,300 for married couples filing jointly).
• 12% for incomes over $11,600 (or $23,200 for married couples filing jointly).
  The lowest rate remains 10% for single individuals with incomes of $11,600 or less (or $23,200 for married couples filing jointly)1.

Alternative Minimum Tax (AMT)

The AMT exemption amount for tax year 2024 is $85,700 and begins to phase out at $609,350 (or $133,300 for married couples filing jointly, with the phase-out starting at $1,218,700).

Compared to 2023, this represents an increase from the exemption amount of $81,300 and a higher phase-out threshold of $578,150 (or $126,500 for married couples filing jointly, with the phase-out starting at $1,156,300)1.

Earned Income Tax Credit (EITC)

The maximum EITC amount for qualifying taxpayers with three or more qualifying children is now $7,830 for tax year 2024, up from $7,430 in 20231.

Final Thoughts

In conclusion, with the impending deadline for filing 2023 tax returns, there are still strategic moves available until April 15th.

Notably, contributing to a Conventional IRA or Roth IRA can impact taxable income and future tax liabilities. The flexibility of making contributions until the deadline allows individuals to optimize their tax positions. Health Savings Accounts (HSAs) also provide a last-minute avenue for tax planning. It is advisable to consult with an accountant since the suitability of these deductions depends on individual circumstances.

Looking ahead to 2024, key tax changes include adjustments to standard deductions, marginal tax rates, Alternative Minimum Tax (AMT) exemptions, and Earned Income Tax Credit (EITC) amounts. Being proactive and understanding these changes early can aid in effective tax planning for the upcoming year.

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