Navigating Tax Season with Strategic Insights

As tax season begins, prioritizing savings takes center stage. While navigating tax strategies may seem challenging, arming yourself with the right tips can help to boost your financial well-being. Read on to learn a few key insights that may assist you in crafting an effective tax strategy.

Maximizing and Splitting Retirement Account Contributions

Boost your retirement savings and reduce taxable income by considering the maximization of your retirement plan contributions. You may also consider splitting your 401(k) contributions into both traditional and Roth amounts. Contributing the right amount to your 401(k) will help limit overall taxable income, whether that is an immediate tax deduction through traditional contributions or during retirement through tax-free Roth distributions. Learn more about contribution limits and increases here.

Maximize Capital Gains when Selling Your Home

If you plan to sell your primary residence, you may qualify for a capital gains tax exclusion on the initial $250,000 of profit, which increases to $500,000 if you are married/file jointly. To make the most of your capital gains tax exclusion and earn up to $100,000, ensure you and your spouse meet the two-year residency requirement in the past five years. When calculating taxes on the sale, consider adding the cost of eligible home alterations and improvements to decrease your gain and minimize tax liability. These strategic moves can significantly impact your financial outcome during a home sale.

Healthcare Payments

If your employer offers a high-deductible health plan linked to a health savings account (HSA), your contributions to the HSA can be tax-deductible or made through pre-tax salary deductions if eligible. If your HSA permits investing your contributed funds, earnings and withdrawals for qualified medical expenses remain federal income tax-free. These savings could be used as a resource for covering future healthcare costs, including Medicare premiums.

Charitable Gifting

If you have a philanthropic cause close to your heart, consider leveraging a donor-advised fund (DAF) to combine several years' worth of gifts into a single year. This supports your chosen cause and also earns you an immediate deduction. Deductions to DAFs as well as public charities allow you to donate up to 50% of your adjusted gross income (AGI), and up to 60% for cash gifts.

A 529 Savings Plan

529 Plans are tax-advantaged, state-sponsored savings plans used to cover qualified expenses at any eligible institution, including private colleges. Your money can grow federally tax-deferred, and withdrawals are tax-free when used for eligible educational expenses. You can also avoid federal gift tax when contributing up to $18,000 for individuals or $36,000 for married couples (filing jointly) to a 529 plan on an annual basis per beneficiary. Some states also offer tax credits or deductions while certain states allow families to use up to $10,000 annually, per beneficiary to pay for tuition at a private elementary or secondary (K-12) school. Learn about the advantages of 529 savings plans and how they can play a role in your tax-saving strategy here.

Tax-Loss Harvesting

A strategy for long-term investment goals, tax-loss harvesting (TLH) consists of selling declining assets and redirecting the proceeds into your more lucrative investments. TLH uses any losses to offset capital gains in your portfolio, and funds potential income tax deductions. For income tax deductions, the annual TLH deduction limit is $3,000, and losses that exceed this amount can be allocated for future use.

As you embark on the journey of improving your savings this tax season, consider integrating these tips into your financial plan. Whether it's increasing your retirement contributions, exploring charitable opportunities, or leveraging tax-efficient investment strategies, each tip helps you take steps towards maximizing your savings.