7 Tax To-Dos Before End-of-Year

1. Check your filing status

Big life changes such as births, deaths and marriages can greatly affect your tax filing status — and tax bill. If you had a child, for instance, you might now be able to claim new tax breaks like the child tax credit on your upcoming return.

If your child turned 18 and aged out of certain benefits this year, or if you experienced a change in marital status, that can impact things, too.

There are five Internal Revenue Service (IRS) filing status categories to choose from:

• Single filers: Unmarried people who don’t qualify for another status.
• Head of household: An unmarried person who is financially responsible for a qualified child or adult family member.
• Married filing jointly: Most married couples file this way.
• Married filing separately: Another option for married couples, sometimes used by higher earners.
• Qualified widow(er): Someone who has lost a spouse and is caring for a child at home.

2. Standard deduction or itemize?

Another important decision is whether to take the flat-dollar standard deduction or to itemize your taxes.

According to the IRS, the simpler standard deduction is far more popular — over 85% of filers took the standard deduction in the 2018 tax year.

However, Jody Padar, a Door County, Wisconsin-based CPA, says people often decide to itemize when new facts or circumstances in their lives qualify them for a higher deduction.

“It could be mortgage interest,” says Padar of reasons people may want to itemize this year. If you live in a state where the cost of housing is high, she says, your mortgage interest could make it worthwhile for you to itemize and claim a higher deduction.

If you’ve donated to charity this year, those contributions are tax deductible if the donation was made to a qualified organization — but you’ll have to itemize. And if you haven’t donated yet, the deadline to do so in the 2023 tax year is Dec. 31.

3. Make retirement contributions

If your employer offers a retirement plan, such as a traditional 401(k) or 403(b), contributing enough to qualify for an employer match is a smart way to top off your contributions for the year. Not only is that employer match free money you can put toward retirement, but because contributions are typically made pre-tax, they can also lower your taxable income.

Don’t have a retirement plan at work? Contributions to a traditional individual retirement account (IRA) — or SEP IRA for self-employed individuals and small-business owners — may also help lower your taxable income.

The tax rules and benefits are different for Roth IRAs and Roth 401(k)s, which are funded with after-tax dollars. Contributions aren’t tax-deductible, but you won’t have to pay taxes on qualified withdrawals from these accounts when you’re retired.

These decisions can and should adjust to your changing life circumstances. Leighann Miko, a certified financial planner based in Portland, Oregon, says, “There is no one-size-fits-all approach to making pre-tax or after-tax contributions.”

Over age 72? Check to see if you’ll need to take your required minimum distributions.

4. Contribute to a health savings account

Another way to reduce your tax bill is to contribute to a health savings account (HSA). HSAs offer ways for people to save toward qualified health care expenses.

Contributions to HSAs are tax-free and can help lower taxable income. Examples of qualified expenses range from prescription drugs to vision, dental and doctor’s exams.

However, not everyone qualifies. Your employer must offer a high-deductible health plan with access to an HSA, and you can’t be enrolled in Medicare or claimed as a dependent on someone else’s tax return.

5. Spend down your flexible spending account

Flexible spending accounts (FSAs) are a type of pre-tax account used to pay for health care expenses. Some employers also offer dependent care flexible spending accounts (DCFSAs) to defray the costs of child and elder care. In either case, money comes out of your paycheck pre-tax, which in turn lowers taxable income. You essentially don’t have to pay taxes on the amount if it goes right into your FSA or DCFSA (up to the limit).

But FSA and DCFSA funds typically don’t roll over year to year. So if you currently have an FSA, be sure to check on the remaining funds and use them before you lose them in 2024.

6. Use tax-loss harvesting to reduce capital gains

If you’ve actively been investing in the stock market and are sitting on unrealized losses, tax-loss harvesting is an investing strategy that can help reduce capital gains taxes.

It works by strategically selling off losing stocks or funds, and using the losses to offset any capital gains taxes owed. If your capital losses exceed your gains, you may deduct up to $3,000 (or $1,500 if married filing separately).

7. Estimate what you owe

Start figuring out how you want to file next year — play with a free tax calculator to get an idea of what your tax situation might look like, and learn about free tax-filing resources.