{"id":2389,"date":"2023-09-19T23:56:22","date_gmt":"2023-09-19T23:56:22","guid":{"rendered":"https:\/\/taxreliefprofessional.com\/?p=2389"},"modified":"2023-09-27T00:00:12","modified_gmt":"2023-09-27T00:00:12","slug":"the-best-ways-to-reduce-your-tax-liability-in-2023","status":"publish","type":"post","link":"https:\/\/taxreliefprofessional.com\/filing-taxes\/the-best-ways-to-reduce-your-tax-liability-in-2023","title":{"rendered":"The Best Ways to Reduce Your Tax Liability in 2023"},"content":{"rendered":"\n
Are you looking for innovative ways to legally reduce your tax liability? Here’s a complete guide on the most effective strategies to use in 2023.<\/h6>\n\n\n\n

The average taxpayer will receive a $1,997 tax refund<\/a> from the IRS in 2023. While that might make those getting it happy, it means they overpaid that amount in taxes during the previous year. <\/p>\n\n\n\n

Also worth noting is that this was a 14% drop in tax return amount from the previous year.<\/p>\n\n\n\n

Going into the 2023 tax season, the IRS warned that taxpayers should expect smaller tax returns from the previous year. It would be more challenging to reduce your tax liability.<\/p>\n\n\n\n

This is partly due to reduced tax rebates from previous economic relief<\/a> packages. The tax rules for charitable donations have also been adjusted over the last year, making using those for tax relief harder. <\/p>\n\n\n\n

So, how can you reduce your tax liability during this tax season? Read on for some tax strategies to lower your tax liability in the future. <\/p>\n\n\n\n

Max Out Contributions to 401k and Traditional IRA<\/h2>\n\n\n\n

One of the most accessible avenues to reduce your tax liability is by contributing to work-sponsored retirement accounts like a 401K or a traditional IRA. <\/p>\n\n\n\n

You actually get a double benefit when you do this. First, the money you contribute isn’t taxed until you withdraw it in retirement. Second, you reduce your current taxable income by a percentage of whatever you contribute based on your tax bracket’s taxable percentage. <\/p>\n\n\n\n

If you are already putting money into a retirement account, ensure you’re maxing out the amount allowed<\/a>. In 2022, that amount increased to $20,500; in 2023, it increased to $22,500.<\/p>\n\n\n\n

Start an HSA<\/h2>\n\n\n\n

Another method to reduce your personal tax responsibility is to start and contribute to a health savings account (HSA). Many companies offer the opportunity to join an HSA to help cover the cost of out-of-pocket medical expenses.<\/p>\n\n\n\n

Depending on your current tax situation, there are two ways to contribute to an HSA. You can contribute before taxes, and the money you put in lowers your taxable income. <\/p>\n\n\n\n

You can also contribute to your HSA after taxes and write off what you contribute on your taxes. <\/p>\n\n\n\n

The money you put into an HSA isn’t taxed as long as it’s used for qualifying health-related expenses like deductibles and prescription drugs.<\/p>\n\n\n\n

Take Advantage of Tax Credits<\/h2>\n\n\n\n

There are a variety of tax credits offered through the IRS that can help to lower your tax burden. When you apply for a tax credit, it goes towards the amount of your taxable income. <\/p>\n\n\n\n

So, if you owe $1,000 in taxes and your tax credit is $1,000, your tax liability becomes zero.<\/p>\n\n\n\n

Some available tax credits can even be refunded if they go beyond your taxable income.<\/p>\n\n\n\n

Talk to your tax professional<\/a> or look to the IRS website for qualifying tax credits that might fit your tax situation. <\/p>\n\n\n\n

Take Advantage of Long-Term Capital Gains<\/h2>\n\n\n\n

Many taxpayers use investments to not only save on taxes but also to grow their wealth. One advantage of inventing is the long-term savings you get from capital gains.<\/p>\n\n\n\n

You can invest in stocks, mutual funds, bonds, and real estate to maximize long-term capital gains. So, before you sell an asset, consider how long you’ve held it.<\/p>\n\n\n\n

If you sell within the year, there are no tax advantages on your profits. But if you hold the asset, you can receive a tax benefit of up to 15% or 20%, depending on your tax bracket. <\/p>\n\n\n\n

Start a Business and Deduct Business Expenses<\/h2>\n\n\n\n

You might be surprised that you could start a business to save some tax money<\/a>. Of course, one benefit of a small side business is the additional income it provides. <\/p>\n\n\n\n

There are some business tax ramifications that you want to discuss with a tax professional. However, you can write off many business expenses from your personal tax filing. <\/p>\n\n\n\n

If your small business operates from your home, you can write a percentage of home expenses because you have a home office used for your business.<\/p>\n\n\n\n

If you use your personal cell phone, home wifi, or vehicle for your business, you can even use a portion of these expenses as a business deduction.<\/p>\n\n\n\n

Deduct Student Loan Interest<\/h2>\n\n\n\n

43.5 million Americans<\/a> have student loan debt. $37,574 is the average amount of federal student loan debt carried by Americans. There are several ways to qualify for a deduction if you have federal student loans.<\/p>\n\n\n\n

Some of these include:<\/p>\n\n\n\n