Plan Now to Get Tax Deduction Advantages in 2024

Singer Andy Williams sings, “It’s the most wonderful time of the year.” He’s right, especially if you want your April 15, 2024, to be stress-free and possibly boost your tax refund or not owe the Internal Revenue Service (IRS). Now is the time to review your finances and see how you can take advantage of any tax opportunities available in your favor before December 31, 2023. Let’s look at some of the available options.

Understanding Deductions

For starters, one of the fundamental concepts you should understand is the difference between “above-the-line” and “below-the-line” deductions. This is relevant because whether you itemize or use the standard deduction, above-the-line deductions can help make a difference in your Adjusted Gross Income (AGI). What are above the line and below the deductions?

Above-the-line deductions are alimony, early withdrawal penalties, health savings accounts (HSAs), Individual Retirement Accounts (IRAs), military moving expenses, self-employment costs, student loan interest payments, and teacher expenses. In other words, they are not itemized deductions. If a deduction is not above the line, it is below the line or an itemized deduction.

I mentioned that above-the-line deductions impact your AGI. Your AGI is defined as gross income minus adjustments to income. Gross income includes your wages, dividends, capital gains, business income, retirement distributions, and other income. The point is that most, if not all, of the itemized deductions and credits for which you qualify are based on your AGI. Simply put, the lower your AGI, the more itemized deductions and credits for which you qualify.

Areas to Look

If you look at the above-the-line deduction list, you can identify one area in which you can reduce your AGI. One great example would be your Health Saving Account (HSA). As a single person, the maximum amount you can contribute to your HSA for tax year 2023 is $3,850, while as a family your maximum contribution is $7,750. If you are older than 55 years, you can contribute additional amounts in what is known as “catch-up” contributions. One reason this above-the-line deduction can work in your favor is because the deadline for making your 2023 tax year contribution is April 15, 2024. However, if you can get it in before December 31, 2023, that would be best.

The other great thing about your HSA is that you can use it as another retirement savings account. The money you place into your HSA can be withdrawn for any reason and not just medical expenses once you reach age 65. However, if you withdraw from your HSA for nonmedical expenses you will have to pay ordinary taxes on your withdrawn amount. The key point is that in addition to your IRA and 401(k), you can also put aside retirement money into your HSA and it can grow tax-free until you are ready to withdraw and not only for health-related expenses. Not only will you lower your AGI, but you will lower your taxable income and thereby increase your opportunity for a greater refund or reduce your tax liabilities. Why not go look at the list and see where you can find tax advantages in this shopping season?

THAT’S WHAT’S UP!

Today’s What’s Up is about your credit report and medical debts. The Consumer Financial Protection Board (CFPB) is now considering a rule which will totally eliminate your medical debts from showing up on your credit report. The rule changes in 2022 and 2023 limited the type of medical information which could be shown on your credit report. The changes also required that medical account balances of $500 or less, and those which were paid off, could no longer be reflected on your credit report. If the proposed rules are approved, all delinquent medical balances would be eliminated from your credit report or not factor into your credit score. And that’s what’s up!

Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC. Give2Get Rich, LLC 2023. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.

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