If you are looking to reduce your tax liability and are currently contributing Roth dollars to your 401(k), consider adjusting this to pre-tax contributions for the rest of the year to reduce your taxes owed. For the 2023 calendar year, you can contribute $22,500 plus an additional $7,500 catch up if you are age 50 or older. For tax year 2023, 401(k) contributions are due 12/31/2023. If you have maxed out the retirement plans available to you through work and still have excess money to save, you can also contribute to an IRA. However, be mindful of the deductible phaseout income limits. The phaseout range for individuals starts at $73,000. For married individuals filing a joint return, the phaseout range starts at $116,000. This means that although you could contribute to an IRA as a married filing jointly filer with a household income of more than $136,000, the contribution will not reduce your tax liability. IRA contributions for 2023 are due April 18, 2024.

When registering for your benefits through your employer during open enrollment this fall, consider electing a high-deductible health insurance plan. If you are on a high deductible health insurance plan you are eligible to contribute to an HSA. For 2023, the maximum you can contribute is $3,850 for individuals and $7,750 for families. If you are age 55 or older, you are also eligible to make a $1,000 catch up contribution. In addition to another tax-deferred savings vehicle, an HSA provides savings on your tax return. If you spend these dollars on eligible healthcare expenses, these dollars are never taxed. Additionally, if you are able to cash flow healthcare expenses without the help of the HSA funds, you can consider investing these funds. At age 65, under current law, you can take out money in your HSA for non-medical expenses without penalty. Like an IRA, you would owe income tax on those funds when withdrawn.

Tax-loss harvesting is another great way to reduce your tax liability and can help to offset capital gains from things like investments, a home sale or a business sale. Tax-loss harvesting is when you sell a holding in your portfolio that has gone down in value from the time you purchased it and then buying another, very similar fund, shortly thereafter to replace it. By doing this you have captured a capital loss while still being allocated to the market in a very similar way as you were before. Any losses not “used up” in any one tax year can be carried forward indefinitely on your tax return to offset gains in future years. The market does not have to be trending downwards to take advantage of these opportunities, however, in years where the market is not doing as well, tax-loss harvesting opportunities present themselves more frequently. This strategy is something that Heritage Wealth Architects does regularly behind the scenes in client portfolios and an opportunity that individual investors often miss or don’t have time to monitor and execute on their own.