Consider Maximizing Your 401(K) Contribution
For 2023, 401(K) contribution limits for individuals are $22,500, or $30,000 if you are age 50 or older.
If you convert non-deductible interest expense such as interest on credit cards and automobile loans into deductible home mortgage interest, you may be able to deduct the interest on your tax return.
In most cases, you can deduct the interest on a home equity loan or line of credit on Schedule A of your 1040, no matter how you used the proceeds. Inquire of your Budwitz & Meyerjack professional as to the restrictions on the deductibility.
If you hold appreciated stock in your portfolio, consider donating the stock instead of cash to your favorite charity.
You can get a charitable deduction for the fair value of the stock and avoid paying any tax on capital gains. For example, if you donate 100 shares of Acme Company that you purchased five years ago for a total of $5,000 but had a value of $25,000 on the day the donation was made, you get a charitable deduction of $25,000 and you avoid paying tax on the $20,000 capital gain you would have recognized if you had sold the stock. NOTE: You must give the stock directly to the charity. Don’t sell the stock and give the money to the charity.
Take advantage of your company’s cafeteria plan and other tax-free benefits.
For example, medical expenses can rarely be taken as an itemized deduction on Schedule A due to the AGI limitation, but through your company’s cafeteria plan, you can fully deduct your medical expenses from your W-2 wages. The only catch is that if your unreimbursed medical expenses for the year are less than what you set aside from your wages, the difference is forfeited. Another example is dependent care. You may elect to have dependent care costs deducted from your W-2 wages in lieu of claiming the dependent care credit on your tax return. This may be more advantageous based on your personal tax situation. You should consult your Budwitz & Meyerjack professional as to which alternative is best for you.
If you are a stockholder in a closely-held business, consider taking a dividend rather than a year-end bonus.
The 15% tax rate on dividends makes this option more appealing than in the past. NOTE: The dividends will still be subject to “double taxation,” so taking a dividend may not be the right option for you. You should engage your Budwitz & Meyerjack professional to assist you in making the correct decision.
529 college savings
529s offer potential tax savings in two ways: While contributions are made with after-tax dollars, earnings are tax-deferred while invested—and money you use for qualified educational expenses isn’t taxed. Those 529 contributions may also qualify for state income tax deductions or credits.
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