NEWS & RESOURCES

Authored by: Ryan Gill, Senior Accountant | Cordell, Neher & Company, PLLC

Are you looking for ways to lower your year-end tax bill? There are plenty of options to consider this year and as we approach 2024. One important factor to keep in mind is taking advantage of tax-advantaged accounts. These can be a game-changer when it comes to maximizing your retirement savings and lowering your current tax bill. Keep the following vehicles in mind when you’re contributing to these accounts to take advantage of all available opportunities.

Boost Your Health Savings Account (HSA)

Healthcare costs can be a significant financial burden, but a Health Savings Account (HSA) offers a unique opportunity to save money while reducing your tax liability. By personally contributing to your HSA account, you can set aside funds to pay for large medical bills that could otherwise disrupt your financial plan.

• Reduces Your Adjusted Gross Income: Contributions to your HSA are tax-deductible and lower your Adjusted Gross Income (AGI). A lower AGI means you pay less in federal income tax.
• Contribution Limits for 2023:
  • $3,850 for self-only coverage
  • $7,750 for family coverage
  • An additional $1,000 catch-up contribution is allowed for individuals aged 55 and older.

An alternative strategy for managing your HSA is to consider contributing the amount you save by choosing a lower premium plan option. With employers often providing both traditional health plans and high-deductible health plans, this method can be a savvy approach to HSA management.

Contribute to a Traditional IRA

A traditional IRA is an individual retirement account that allows your earnings to grow tax-deferred. Taxes on your investment gains are only paid when you make withdrawals during your retirement.

• Contribution Limits for 2023:
• $6,500 for individuals under 50
• $7,500 for individuals over 50

Don’t forget to think about the following:

Contribution Age Limit

• Due to the adjustments introduced by the SECURE Act, contributions to a traditional IRA are now permissible without regard to your age.

Mandatory RMDs

• You must begin taking required minimum distributions (RMDs) from your account by April 1 of the calendar year following the year you reach age 73.

Leverage Your Flexible Spending Account (FSA)

A Flexible Spending Account (FSA), also known as a “flexible spending arrangement,” is a special account where you can save money to pay for certain out-of-pocket expenses. An advantage of these accounts is that you will not pay taxes on the money you contribute to the plan.  Distributions from the account are tax free if spent on qualifying expenses.

• Health Care Expenses: An FSA for healthcare allows you to allocate funds specifically for medical and dental expenses that are not covered by insurance. This means you can use it to pay for co-pays, prescription drugs, medical supplies and even medical equipment like crutches or bandages. It’s also a great way to cover the costs of essential diagnostic devices, such as blood sugar test kits.
• Childcare Expenses: If you have dependents, you can use an FSA to cover eligible childcare expenses. You can only use the money for bills that meet the IRS definition of eligible dependent care service–meaning the services must be necessary for you and/or your spouse to work and earn an income. Qualified expenses include:
  • Essential services like physical care and in-home care by a qualified caregiver such as a nanny or babysitter. You can also use FSA funds for institutional-setting care like daycare services or summer day camps.
  • Before–and after-school care, transportation provided by a caregiver and application fees or deposits required for obtaining care are also covered, as long as care is subsequently provided.

• No Tax Deduction Required: Contributions to an FSA are taken directly from your wages before taxes, meaning there is no need to claim a deduction on your tax return.
• Contribution Limits for 2023:
  • $5,000 for single fliers
  • $2,500 for couples filing jointly

By using an FSA, you effectively reduce your taxable income, making it an excellent option for parents and individuals with qualifying expenses.

By personally contributing to the above accounts, you can lower your AGI and keep more money in your pocket. Consulting with a tax professional or financial advisor is crucial to tailor the best approach for your situation.