With the April 18, 2023 tax-filing deadline approaching, it’s not too late to consider some strategies that could reduce taxable income.
Investors may want to consult with an advisor who understands their individual financial situation before taking advantage of these strategies.
- Contribute to an individual retirement account (IRA). Taxpayers may make a tax-deductible contribution prior to the tax-filing deadline of April 18, 2023. Also, if a taxpayer’s spouse does not work outside of the home, a contribution can be made into a spousal IRA. For more information on IRA contribution limits and income thresholds for the deduction of IRA contributions from income, see “2022 tax rates, schedules and contribution limits.”
- Add to a health savings account (HSA). Individuals who are eligible for an HSA may make a contribution prior to April 18 and include it in their 2022 filing. Contributions to HSAs are still deductible even if taxpayers do not itemize their deductions. The 2022 contribution limits for HSAs are $3,650 for individuals and $7,300 for families. Individuals age 55 and older can contribute an additional $1,000.
- Fund a Simplified Employee Pension (SEP) IRA. Small-business owners, sole proprietors, and freelance workers still have time to fund a SEP-IRA before the tax-filing deadline. Investors can take a federal income tax deduction equal to the amount of their employer contributions, up to a maximum of 25% of compensation paid during the year. For the self-employed or freelancers, the deduction is limited to 20% of net earnings after expenses. Additionally, due to the new SECURE 2.0 law, sole proprietors can establish and fund an individual 401(k) plan up to the tax-filing deadline.
The clock is ticking
With the tax season underway, it’s an opportune time for advisors to communicate with investors, especially those who may have questions about the tax status of health savings accounts or how to take advantage of IRA strategies. Also, small-business owners and sole proprietor clients, who may not have established a retirement savings account, may benefit from establishing a SEP-IRA for the current tax year.
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