This is the time of year when you should be collecting and organizing all your financial information for the 2023 tax year in preparation for filing. Generally, you should receive 1099s and W-2s from employers, investment brokers, banks and any organizations that made payments to you throughout the year by the end of January 2024. Some tax documents arrive later. For example, if you sold your home in 2023, the 1099-S form that shows the selling price will be sent to you by February 15th 2024.
Retirement Account Contributions
Be sure that you max out your 2023 contributions for your 401(k) and IRA. 401(k) contributions have to be made before December 31, 2023, but you have until April 15th 2024 to contribute to an IRA. The maximum contribution to a 401(k) is $22,500 ($30,000 if age 50 or older). The maximum contribution to an IRA is $6,500 ($7,500 if age 50 or older).
Student Loan Interest Deduction
With student loan payments resuming this year, many taxpayers will be able to deduct
student loan interest on their returns. The maximum deduction is $2,500, which will begin to phase out based on income. For single taxpayers, the phase-out begins at $80,000 of adjusted gross income. For married taxpayers filing jointly, the phase-out begins at $165,000 of adjusted gross income.
Harvesting Tax Losses
Capital losses can offset capital gains to reduce your tax bill. Before December 31st, you can save on taxes by triggering capital losses in your investment portfolio to offset capital gains, plus $3,000 of capital losses to deduct against other income. Unused capital losses can be carried forward for future use.
Business Asset Depreciation
If your business needs to purchase equipment or make interior improvements to real
property, consider doing so and placing the asset in service before the year’s end. The bonus depreciation rules allow 80% of the cost of vehicles, equipment, furniture and fixtures, and machinery with useful lives of 20 years or less placed in service in 2023 to be expensed. The bonus depreciation figure reduces to 60% of the cost of the asset in 2024, so delaying the acquisitions until 2024 could substantially reduce your current year’s depreciation expense.
Working From Home?
You may qualify for significant deductions. The surge in hybrid and remote work’s popularity has triggered many questions among
those working from home regarding their eligibility to claim work-related expenses. The key factor is your employment status; employee or independent contractor. Employees do not qualify to deduct any work-related expenses resulting from at-home work. However, independent contractors can deduct expenses based on the percentage of their home being used regularly and exclusively for business in addition to the ordinary and necessary costs of doing business.
It is imperative that you keep accurate records and receipts of any expense you wish to claim. Consult with your tax advisor on how to optimize the business use of your home to maximize your tax savings.
