Tax Secrets the IRS Won't Tell You... But We Will

Tax Secrets the IRS Won't Tell You... But We Will

March 22, 2024

Taxes – they're a fact of life. Whether you love them or loathe them, they're essential to living in a modern society. But navigating the murky waters of tax laws and regulations can often feel like deciphering a cryptic code. Read on to discover strategies to help mitigate the effects of taxes on your nest egg this filing season.

In the fiscal year of 2023, the IRS processed more than 160 million federal individual tax returns and supplemental documents. However, despite the abundance of information the IRS provides on how to file your taxes correctly, certain lesser-known secrets could save you money or protect you from trouble. In this blog, we'll shed light on some of these tax secrets that the IRS might not readily disclose.

1. File Taxes on Time

The IRS is strict about Americans paying their taxes on time. If you're even a day late with a payment, you can expect penalties and possibly fines added to what you owe. This applies even if you disagree with the amounts on your tax return. For example, if you finish your tax return but don't understand why some deductions were denied, you still have to pay the amount listed as owed. 

If you complete your tax return but find certain deductions disallowed, you're still obligated to remit the amount stated as owed on your return. Afterward, you can consult with the IRS to contest the disallowed deductions, and they may even issue a refund if deemed appropriate. However, if you don't file your return by the due date, you'll get hit with a penalty of 5% for every month it's late, up to 25%. The bottom line? You must file your tax return on time, even if you don't agree with the outcome.

2. You May Have To Find Deductions and Credits on Your Own

Understanding the nuances between tax credits and tax deductions is essential for maximizing your tax savings. Tax deductions lower your taxable income by subtracting eligible expenses or contributions from your total income. The IRS provides the standard deduction amount on your tax form:

  • The standard deduction for married couples filing jointly for 2024 is $29,200, an increase of $1,500 from 2023. 
  • For single taxpayers and married individuals filing separately, the standard deduction is $14,600 for 2024. 
  • For heads of households, it will be $21,900 for 2024, an increase of $1,100 from the amount for 2023. 

Tax credits can result in substantial savings, as they directly reduce your tax liability rather than just lowering your taxable income. Various credits are available, such as the retirement saver's credit, mortgage insurance premiums, and the earned income tax credit, which you could be eligible for.

Understanding the distinctions between tax credits and deductions can help you spot opportunities to leverage these tax benefits and retain more of your money. Consulting with a financial advisor can provide valuable guidance if you're unsure about optimizing your credits and deductions.

3. Utilize Tax-Advantaged Retirement Accounts

Utilizing tax-advantaged accounts is a smart strategy for minimizing your tax burden while saving for future expenses. One key aspect of retirement planning is understanding the contribution limits for retirement accounts such as 401(k)s and IRAs. These limits determine how much you can contribute to these accounts each year, helping you build a robust nest egg for retirement. 

Let's take a look at the expected contribution limits for 2024:

  • 401(k) Plans: The contribution limit for 401(k) plans is projected to increase to $23,000 in 2024, up from $22,500 in 2023. For those aged 50 and older, an additional catch-up contribution of $7,500 will remain the same. It's important to note that these new amounts apply to 403(b) and most 457 plans.
  • IRA Contribution Limits: Individual Retirement Accounts (IRAs) are another popular retirement savings option. The contribution limits for IRAs are to remain relatively stable. For 2024, individuals under 50 can contribute up to $7,000, up from $6,500 in 2023. Catch-up contributions for adults 50 and older will remain at $1,000.
  • Roth IRA Contribution Limits: Beginning in 2024, more Americans will qualify for Roth IRA contributions, with the AGI range rising between $146,000—l$161,000 for single filers, up from $138,000 to $153,000 in 2023. The Roth IRA contribution phaseout for married couples filing together will rise to between $230,000 and $240,000 in 2024, up from $218,000 to $228,000.

It's essential to consult with a financial advisor or check the latest IRS guidelines to confirm these limits for 2024 and adjust your retirement savings strategy accordingly.

5. Explore Other Savings Options

While traditional IRAs and 401(k)s are well-known options, several other tax-advantaged accounts are worth considering. Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are particularly beneficial for managing medical expenses. With an HSA, you can contribute pre-tax dollars to cover qualified medical expenses, such as doctor visits, prescriptions, and over-the-counter items. Contributions to an HSA are tax-deductible, and withdrawals for qualified medical expenses are tax-free, making it a triple tax-advantaged account. 

Similarly, FSAs allow you to set aside pre-tax dollars to cover eligible medical expenses, offering immediate tax savings on qualified healthcare costs. Exploring these tax-advantaged account options can lead to significant tax savings while helping you achieve your financial goals, whether saving for retirement or managing healthcare costs. Strategically utilizing these accounts can help you maximize your tax efficiency and keep more of your hard-earned money in your pocket.

Financial Advisors Can Help With Taxes

Understanding tax strategies and managing your tax bill should be part of any sound financial approach. Some taxes can be deferred, and others can be managed through tax-efficient investing. With careful and consistent preparation, a financial advisor can help you manage the impact of taxes on your financial efforts.

This is where working with a fiduciary advisor can prove immensely beneficial. Fiduciary advisors offer personalized financial strategies to help manage the impact of taxes on your financial efforts. What's more, as a fiduciary and Registered Investment Advisor, you can be confident Agemy advisors will recommend only what is in your best interest.

From tax planning and legacy planning to wealth management and estate planning, we provide the guidance and support needed to navigate every stage of your financial journey, including the transition into retirement. With years of experience and a personalized approach, you can confidently chart a course toward a secure and prosperous future.

Final Thoughts

While the IRS provides plenty of guidance on fulfilling your tax obligations, there are still many secrets and strategies that can help you save money and avoid trouble. By understanding the ins-and-outs of the tax code and leveraging lesser-known techniques, you can help make the most of your tax filing.

At Agemy Financial Strategies, we are committed to educating our clients on various financial matters. With over 30 years of experience in helping individuals reach retirement stress-free, our unwavering dedication to serving our clients remains at the core of our mission. 

Contact us today to learn how we can help you this tax season and beyond.