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2023 Mid-year Tax Check-In

By Adam E. Day, Financial Advisor

As we enter mid-year for 2023, it is essential to implement effective tax planning strategies to optimize your financial picture for the year ahead. With potential changes in tax laws and regulations, staying informed and proactive is crucial. In this article, we present six valuable tax-planning tips to help you navigate 2023 and minimize your tax liabilities while maximizing your savings.

1. Maximize Retirement Contributions:

Take full advantage of retirement savings options and maximize your contributions. Evaluate your employer-sponsored plans, such as 401(k) or 403(b), and individual retirement accounts (IRAs). Consider contributing the maximum allowed amount, as these contributions may be tax-deductible or grow tax-free, depending on the account type. The maximum 401k contribution amount for 2023 is $22,500 or $30,000 for those 50 and older. Contribution limits for IRAs in 2023 have increased by as well to $6,500 with an additional $1,000 catch-up for those over age 50.

2. Utilize Tax-Advantaged Accounts:

Explore tax-advantaged accounts, such as Health Savings Accounts (HSAs). These accounts offer tax benefits when used for eligible medical expenses. Maximize your contributions to reduce taxable income and potentially save on healthcare-related costs. Similar to the 401k, HSA contribution limits have increased. For 2023, the Single plan limit is $3,850, while Family limits are $7,750 (1). Don’t forget there is an additional $1,000 catch-up contribution for those over 50.

HSAs are tax-efficient making them an effective savings and investment account:

1. Withdrawals for qualified medical expenses are income tax-free.

2. All contributions to an HSA are income tax-free.

3. Any interest earnings and investment growth from deposits are income tax-free.

4. Additionally, HSA contributions come out before going through payroll, so they have the advantage of avoiding Medicare and Social Security Tax.

3. Optimize Itemized Deductions:

Reassess whether itemizing deductions or taking the standard deduction is more beneficial for you. Evaluate deductible expenses such as mortgage interest, state and local taxes, medical expenses, and charitable contributions. Organize your receipts and documentation diligently to ensure accurate reporting.

4. Consider Tax-Loss Harvesting:

Tax-loss harvesting involves selling investments that have experienced losses to offset capital gains and potentially reduce your tax liability. Review your investment portfolio and consult with your financial advisor to determine if tax-loss harvesting is a viable strategy for your situation.

5. Explore Charitable Giving:

Charitable contributions can not only benefit your favorite causes but also offer tax advantages. Research and support qualified charitable organizations to potentially lower your taxable income. Keep detailed records of your donations, including receipts and acknowledgments, for tax reporting purposes.

6. Seek Professional Guidance:

Consider consulting with a qualified tax professional or accountant to ensure comprehensive tax planning. They can offer personalized advice based on your unique financial situation, guide you through complex tax laws, and help you optimize your tax planning strategies for 2023.

Tax planning is a vital aspect of financial management. By staying informed, making strategic decisions, and leveraging available resources, you can navigate the tax landscape more effectively in 2023. Start planning early and take proactive steps to optimize your tax situation for the year ahead. Please reach out to your Financial Advisor to discuss this further, to review your portfolio from a tax standpoint, or with any questions.

(1) Consult a professional for eligibility requirements. Note that over-contributions are subject to an excise tax of 6% if not corrected before the tax deadline, while withdrawals to pay for ineligible expenses (as defined by the IRS) are subject to a 20% tax (as well as ordinary income tax) when under the age of 65.

This information is made available with the understanding that Wells Fargo Advisors Financial Network and its affiliates are not engaged in rendering legal, accounting or tax advice. Be sure to consult your own tax advisor and investment professional before taking any action that may involve tax consequences. Tax laws or regulations are subject to change at any time and can have a substantial impact on your individual situation.

Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.


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