6 Tax Saving Tips to Implement NOW So You Keep More of Your Money

April 15th is the most dreaded day on the calendar.

It sparks fear into the hearts of people from coast to coast. It’s the best example of the opposite of a holiday we look forward to celebrating. Most hear the date of April 15th, and they roll their eyes with woeful neglect and unpreparedness.

The reason? Tax Day.

Many Americans wait until the last minute to write off anything that may be tax-deductible.

But here’s where most people screw up: Tax planning isn’t and doesn’t need to be a once-a-year activity.

Failing to plan means you’re planning to fail. And thoughtful planning year-round can help you reduce your tax liabilities come April. Being proactive will help maximize your benefits and minimize tax time surprises.

Here are six ways to plan for tax season throughout the year – so you’ll be in good shape when you file and not dread tax day anymore.

Disclaimer: This is not advice. Seek a tax expert and a financial professional before proceeding with your taxes.

Also, this article focuses on personal finances. If you want to write things off for your business, please go here, courtesy of Melanin Money.

1. Make An Income Tax Projection to Prevent Surprises

One of the most critical steps is figuring out where your taxes stand before making changes is too late.

A projection of your potential income tax beforehand gives you more breathing room, and it can help you plan more effectively for the upcoming tax season, finding ways to reduce your tax burden.

Find a reputable tax preparer to help you with this process, and they can help you create a tax projection.

In fact, this is encouraged by the IRS, claiming it’s one of the most vital ways to ensure tax security.

Ask your tax professional to do the projection and review the results with your financial professional.

2. Find Ways to Reduce Income Taxes

One of the easiest ways to reduce your income tax liability is to reduce your taxable income.

As you can find right on the IRS website, you can defer your tax liability — or eliminate it — when you make qualifying contributions to specific financial vehicles, such as:

• Retirement accounts and plans. You can make tax-deductible contributions to a 401(k) plan, 403(b) plan or traditional IRA. Plus, the amount you can contribute yearly increases if you're 50 and older. 

• HSAs. Health savings accounts (HSAs) give you the triple tax benefit of tax-deductible contributions, tax-free earnings, and tax-free withdrawals for qualified medical expenses.

• FSAs and DCFSAs. Flexible spending accounts (FSA) and Dependent Care FSAs (DCFSA) let you bypass taxes to save for healthcare costs and dependent care. Depending on the plan, you may need to use the funds in these accounts within the calendar year or shortly after that.

• 529 plans. A 529 plan allows you to contribute while enjoying tax-free earnings and withdrawals for approved educational expenses.

All 401(k) contributions must be in by December 31st. You can contribute to IRAs and HSAs up to the tax deadline each year.

3. Minimize Capital Gains Tax On Investments

A capital gain refers to selling something for more than you spent on it, such as stocks.

The federal government charges you for this profit with “capital gain taxes.” There are several techniques you can use to reduce your tax burden on your investments:

• Spread your sales over two years. If it’s practical for you, sell only a portion of your appreciated assets this year and the remainder the following year.

• Transfer appreciated assets to a child. If your child is not a dependent and is in a lower tax bracket, they might see significantly less tax for the capital gains.

• Transfer appreciated assets to a charity. You’ll avoid the capital gains tax entirely and, in most cases, be able to claim a deduction for the fair market value of those assets.

• Take advantage of tax loss harvesting. Defer taxes using your market losses to offset some of the gains your assets see for the year.

• Invest your gains in Opportunity Zone funds. By shifting your money to qualified funds for disadvantaged communities, you can defer and even reduce the tax you owe.

This is a great way to save on taxes come tax day.

4. Take Advantage of Current Gift and Estate Tax Rates

Make the most of the annual gift tax exclusion, which is the amount of money you can gift to an individual annually, tax-free.

In 2023, you can transfer $17,000 to an individual without any gift tax implication, and you don’t have to be related. A couple can also collectively gift up to $34,000 to an individual this year, and you’re free to make gifts year after year to multiple people.

The Tax Cuts and Jobs Act (TCJA) more than doubled the gift tax lifetime exemption, tax-free money you can gift over your lifetime. The exemption for 2023 is $12.92 million per individual and $25.84 million for a married couple filing jointly.

However, the current exemption amount ends in 2025, reverting to pre-TCJA levels.

The cap on estate transfers will drop from $12.92 million per individual to about $6.8 million (adjusted for inflation).

5. Re-examine Your Charitable Giving

One tangible benefit of charitable giving is tax-deductible donations can reduce your taxable income.

To claim these donations, you must itemize your deductions at tax time. However, the current standard deduction may cause you to think twice about donating to your favorite causes.

To make the most of your donations and increase your tax savings, you may want to use a “bunching” strategy.

With bunching, you replace several years of smaller donations with a large donation in a single tax year. This tactic of bunching allows you to benefit from itemizing your deductions and claiming the tax benefit of your contribution.

Another option to consider is setting up a donor-advised fund. You can make a single, “bunched” donation while instructing the fund to spread your contribution to a charity of your choice over several years. Note that you only get a tax deduction for the year you make the gift.

If you’re taking required minimum distributions on retirement funds, you have an option in the form of qualified charitable contributions (QCDs).

Instead of taking those distributions as cash, funnel some or all of that distribution directly to a charitable organization. You’ll enjoy both the high standard deduction and having your donated distribution taken directly off the top of your taxable income.

6. Work Closely With a Financial Professional

A financial professional can help you see how different aspects of your finances (e.g., taxes, investments, and charitable giving) can work together to help you work toward your goals.

When you first start training, it’s best to get a personal trainer or a coach to learn from a master. Learning from a professional saves time and potentially years of mistakes.

It’s the same with your finances.

Share your vision and take full advantage of their expertise. With some preparation, you can be more strategic about your taxes year-round.

The BMM Takeaway

Listen, we here at Big Money Methods love making money.

And living in the United States, you’ve got to pay some taxes. That’s the price we pay for doing business.

We also love saving money to use it to make even more money. This is why it’s paramount that you don’t neglect your taxes and prepare for the “dreaded” April 15th.

But here’s the thing: With preparation, you won’t need to dread anything. You’ll be ready.

If you claim to be serious about money and growing wealth, get serious about your taxes. Make it a year-round activity that you actively prepare for with the help of financial professionals.