Employees should consider these tax strategies before year-end

Maximize Retirement Contributions

Contribute as much as possible to tax-advantaged retirement accounts, such as 401(k)s and IRAs, as these contributions can lower taxable income.

The maximum contribution limit for 401(k)s in 2023 is $22,500 ($30,000 with catch-up contributions for those age 50 and older), while the limit for IRAs is $6,500 ($7,500 with catch-up contributions).

Use Flexible Spending Accounts

Contribute to flexible spending accounts (FSAs) to pay for qualified medical expenses.

Contributions to FSAs are deducted from pre-tax income, reducing taxable income. However, any unused funds in an FSA at the end of the year are forfeited.

Claim Tax Credits

Make sure to claim all eligible tax credits, such as the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and American Opportunity Tax Credit (AOTC).

These tax credits can significantly reduce tax liability and may even result in a refund.

Harvest Capital Losses

If you have unrealized capital losses in your investment portfolio, consider selling these assets to offset any capital gains.

Capital losses can be used to reduce capital gains and ordinary income up to $3,000 per year. Any unused losses can be carried forward to future years.

Consider a Roth Conversion

Those who anticipate being in a higher tax bracket in retirement may want to consider converting some traditional IRA funds to a Roth IRA.

While conversions are subject to income tax in the year they are made, qualified withdrawals from Roth IRAs in retirement are tax-free.