Looking to reduce your overall tax liability, boost your cash flow, or both?
Here are several strategies you can use to ease the tax hit on you and your family this year and going into 2024.
1. Make a small extra payment on your student loan before December 31
Why? Because interest on student loans is tax deductible. If you have a payment due towards the beginning of the month, then some interest will accrue as you get to the end of the month. You’re going to have to pay it sooner or later. Making a small payment to cover the interest that accrues during the last month of the year pushes the interest deduction from next year to the current year. This means you get the benefit of the tax deduction now, rather than in April of 2024, when you file your income taxes for 2023.
2. Run with that concept
In theory, that concept should apply to any loan with tax-deductible interest. Business loans and home mortgage loans qualify, as well.
3. Harvest capital losses
Do you have investments that you have made that have lost money? You can sell them and claim a capital loss deduction. You can use these deductions to offset an unlimited amount of capital gains, thereby reducing your capital gains tax bill. If you have no capital gains, or if you have more losses than gains, you can use those gains to eliminate taxes on as much as $3,000 of ordinary income for 2023. But you have to complete the transaction by the end of the year.
Did you have capital losses on positions you sold last year that you weren’t able to use to offset ether capital gains or income? You can carry those left-over losses forward to future years. You can carry 2023 losses forward to 2024 as well, and use those losses to offset all your capital gains first, and then offset up to $3,000 of ordinary income. Any unused losses left over at that point can be carried forward to next year, and the year after that, as long as it takes for every dollar of losses to be offset against gains, and then up to $3,000 income each year.
This technique is called “tax loss harvesting.”
Be aware, though, that you cannot buy the same or a substantially identical security back within 30 days and still claim a capital loss. But you can buy back a very similar or highly correlated asset and remain fully invested.
4. Pay professional dues, subscriptions and association fees before year-end
Especially if you’re planning on paying them in January or February. These are all tax-deductible expenses (to the extent they exceed 2 percent of your adjusted gross income.) It’s generally better to take the deduction now rather than push it into the next year. However, you may want to push them into next year if you’re getting a huge pay raise that will put you into a higher marginal tax bracket, or if your miscellaneous itemized deductions this year don’t amount to 2 percent of your adjusted gross income.
5.Check to see if you’re subject to the AMT, or alternative minimum tax
This is a special tax that may apply to you if you have a relatively high income and lots of tax deductions such as significant home mortgage interest, student loan interest and dependents. If you think you might be subject to the AMT, you need to speak to a tax professional now. There may be some actions you can take to lessen the impact of the AMT but you have to execute them prior to the end of the year.
6. Maximize your IRA contributions for the year
You can make up to $5,500 in contributions to an IRA or combination of IRAs this year Even if you make too much to qualify for a tax deduction for your contributions to a traditional IRA, you can still opt for a Roth IRA, which grows tax-free as long as the money’s been in the account for at least five years. Or you can make non-deductible IRA contributions. You do, however, have until April 15th to make these contributions for this year, so there’s no real rush on them if you’re reading this in December of 2023.
7. Postpone bonuses or salary to 2024, if you can
If you own your own practice, consider deferring income until 2024.
8. Contribute to a section 529 plan or Coverdell Education Savings Account
529 plans contributions are tax deductible. Coverdell contributions aren’t deductible, but assets in the Coverdell grow tax-deferred, and qualified education expenses are tax-free. Unlike 529 plans, Coverdells can be used to pay for private elementary and secondary school tuition and expenses. 529 plans have to be used for college expenses.
9. Prepay business expenses
Prepay as many deductible or business expenses as you can with a credit card before the end of the year.
10. Pay any contested taxes, so you can claim the deduction
You can still contest the amount, and potentially get a refund in the following year.
11. Contribute to an HSA (health savings account)
Particularly, if you have a high deductible health insurance plan and otherwise qualify.
12. Give to relatives and loved ones
Under current law, you can transfer up to $14,000, tax free, each year, as part of a strategic gifting program, without tax consequences. If you’re married, you and your spouse can transfer up to $28,000. That’s per recipient.
13. Write off uncollectible debts
If you have accounts receivable that you are unlikely to collect, you can write them off and take a tax deduction this year. If you won’t be collecting the debt anyway, a deduction this year is better than collecting nothing next year
14. Increase your basis in S corporation or partnership
This may help you increase your allowable tax deductions for the current year.
Do you have questions about disability insurance, life insurance, retirement planning or planning for long-term care? Give us a call at 866-899-7318. DoctorDisability.com is among the leading experts in the insurance and financial needs of doctors and allied health care professionals.
Doctor Disability Insurance, Inc. is an innovative, one-stop service that makes disability insurance shopping quick, affordable, and easy to understand. Physicians save time and money by comparing plans and prices from multiple insurance companies. The site provides free quotes from leading names in the disability insurance industry along with friendly and knowledgeable customer support. The best values in the insurance industry are located in one place and are available any time doctors are ready, including late at night and on weekends.
Based in San Clemente, California, President and CEO Charles Krugh is a Certified Financial Planner with more than 15 years of experience working with people in the medical industry.
DoctorDisability.com does not give specific tax advice. The contents of this blog are for general informational purposes only and should not be construed to be individualized tax advice. You should additionally seek the services of a qualified tax professional.
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