As the tax season approaches, many individuals are preoccupied with methods to optimize their financial outcomes for the previous year. This endeavor is particularly challenging for W-2 employees—those who earn wages through traditional employment—who often find that their options are significantly restricted post-December 31. According to certified financial planner Catherine Valega of Green Bee Advisory, the window for making significant tax-reduction moves effectively closes with the end of the calendar year. Thus, now is the time to explore the avenues available before the looming April 15 deadline.
While opportunities diminsh rapidly as the year progresses, several effective options can still be utilized to help lower taxable income or maximize tax refunds before filing is due. One of the primary strategies available is contributions to Health Savings Accounts (HSAs). As long as individuals possess a qualifying high-deductible health insurance plan, they can contribute up to $4,150 for self-coverage and $8,300 for families before the April 15 deadline. Financial planner Thomas Scanlon emphasizes that HSAs are advantageous not only for sheltering funds from taxes but also for their flexibility in future health-related expenses.
Another great opportunity exists for those wanting to invest in their retirement through Individual Retirement Accounts (IRAs). Taxpayers can contribute up to $7,000, with an additional kick of $1,000 for those aged 50 and over. This approach not only diminishes taxable income for the year but also builds a nest egg for retirement. However, it’s worth noting that pre-tax IRA contributions can lead to future taxation. As financial advisor Andrew Herzog points out, a traditional IRA merely postpones the tax bill, allowing for potentially greater growth in the interim.
For couples who file taxes jointly, the spousal IRA presents an often-overlooked opportunity for non-working partners to contribute to a separate retirement account, whether it’s a Roth or traditional IRA. This strategy allows married couples to maximize their tax advantages even when one spouse isn’t generating income. As long as the working partner has sufficient earned income, both can benefit from making contributions and receiving potential tax deductions.
In summation, while the time to make significant tax adjustments for 2023 is quickly dwindling, those who act now—by utilizing HSAs, contributing to IRAs, or considering spousal IRAs—can make a meaningful impact on their financial future. Financial experts emphasize the importance of planning and taking advantage of these remaining opportunities before the April 15 deadline. Given that opportunities tend to be limited for W-2 employees, awareness and proactive management of these financial tools can create substantial benefits during tax season. Ultimately, understanding and seizing these last-minute strategies can lead to a more favorable tax outcome and solidify a foundation for financial health moving forward.