3 Moves to Make Early in 2023 to Lower Your Taxes

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The sooner you work on tax-reduction strategies, the better. 

It’s fair to categorize taxes as a necessary evil. The taxes we pay help fund different public programs. But they also take some of our hard-earned money away from us. And that’s a bummer, to say the least.

The good news, though, is that there are steps you can take to lower your taxes and pay the IRS less. And if you want to minimize your tax burden in 2023, it pays to focus on doing so at the start of the year. Here are a few specific moves it pays to make early in 2023.

1. Start funding your IRA

Money that goes into a traditional IRA is money the IRS can’t tax you on. The good thing about IRAs is that you have all year to fund one. In fact, you actually have more than a year to contribute to an IRA, because you get until the following year’s tax deadline to finish pumping money into your account.

But when you put off IRA contributions, that money tends to disappear into other places, like vacations and impulse purchases. So a good bet is to start steadily funding your IRA, beginning in January. Set up an automatic transfer so that every time a paycheck comes in, a portion gets moved into your IRA before you can spend it.

2. Put money into an HSA

If you have health insurance that’s compatible with a health savings account, or HSA, then it pays to make contributions. Like traditional IRAs, HSAs give you a tax break on the money you put in. Plus, with HSAs, you get the benefit of tax-free growth on the money you invest rather than use right away, and you also get tax-free withdrawals as long as you’re taking money out for healthcare expenses.

3. Take losses on investments strategically

You may find that your brokerage account balance is down in early 2023 due to the turbulent year the stock market has had. And you definitely don’t want to start selling off different assets in a panic.

But one thing you should consider is taking a look at your investments and seeing if you own a particular asset that’s consistently been underperforming. In that case, selling it off as a loss could help you lower your taxes for the year.

Not only can you use investment losses to cancel out investment gains, but you can also use investment losses to cancel out some ordinary income. So let’s say you take a $5,000 loss on a stock but don’t make any money in your brokerage account. You’re allowed to use your loss to offset up to $3,000 of regular income, and you can then carry your remaining $2,000 loss forward into the next tax year.

If paying less tax is a goal of yours, you’re no doubt in good company. But don’t just wait until the end of the year to start focusing on strategies to lower your tax burden. Instead, start making plans to lower your taxes at the start of the year so you’re not left scrambling later on.

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