Don't Mess With Taxes

March's arrival means it's time to start stalking some tax savings. (Photo via Unsplash+ in collaboration with Getty Images)

While the saying that March comes in like and goes out like a lamb usually is a reference to this month's weather transition from winter to spring (or, here in Central Texas, to summer already), feline aggressiveness could come in handy at tax filing time.

There are plenty of tax moves you can make during this final full month before Tax Day, which is this year is the normal April 15 due date.

Here are five tax matters to consider in March that could help make next month's filing easier and potentially less costly.

1. Establish or add to your IRA. If you have an IRA, Roth or traditional, and didn't max out your contributions last year, do so now. Tax law gives you until Tax Day — it's the usual April 15 date this year — to add to your retirement account and have it count toward the prior tax year.

If you don't have an IRA, you also have until the April deadline to open one and use it for the previous year's contributions.

The maximum contribution for 2023 tax year purposes is $6,500 for either type of IRA. If you're age 50 or older, you and add another $1,000.

By adding that much to your prior tax year contributions, you'll maximize the value of your IRA and its compounding power. And for some taxpayers, contributions to a traditional IRA also could mean immediate tax deductions.

The biggest tax break is available to filers and, if married, their spouses, who don't have workplace retirement plans. In these cases, the full contribution amount is tax deductible.

However, if either spouse participates in a job-sponsored retirement plan, income thresholds based on modified adjusted gross income, or MAGI, amounts kick in. The following Internal Revenue Service table shows how much of a deduction a traditional IRA contribution is worth if you're covered by a retirement plan at work.

Yes, you do have until next month to make your IRA contribution for 2023 tax purposes. But again, the sooner you get the money into the account, the faster its compounding power can get to work for you.

2. Contribute to your HSA. The same tax year contribution timing shift also applies to health savings accounts, or HSAs. That gives you until April 15 to make your 2023 tax year contribution.

Doing so helps bulk up an account that's already a triple tax-saving threat. You get a write-off for contributions, tax-free growth in the account, and don't owe any tax on withdrawals used to cover qualified medical expenses.

Sounds great, right? They are, but only for folks who have high deductible health plans (HDHP). In these cases, their HSAs help pay their larger out-of-pocket medical expenses.

For 2023, HSA owners with individual HDHP coverage you can contribute up to $3,850 to an HSA. Family HDHP coverage will let you put up to $7,750 in an HSA. Policy holders who are 55 or older can sock away an additional $1,000 for the tax year.

If you can afford to max out your HSA for the prior (and current) tax year, do so. The more you can contribute, the more you can benefit from the HSA's potential triple tax advantages.

3. Adjust your withholding. If you've already been working on or filed your 2023 tax return and discovered you owe Uncle Sam, act now to avoid a repeat next filing season. Tweaking how much comes out of your paychecks also is a good idea if you're getting a refund.

The ideal payroll withholding situation, is to have just enough tax — not too much, not too little — taken out of your paychecks to meet your eventual annual tax bill.

I know, a lot of folks like the forced savings of overwithholding. But if you get that money every pay period throughout the year, you can use it to pay down your monthly bills, reducing some of the interest you're probably paying on revolving credit balances. Adjusting your withholding is easy, especially if you use the IRS' online Tax Withholding Estimator. Then just plug the tool's numbers into a new W-4 form you'll give your payroll office.

4. Evaluate your estimated taxes. If you work for yourself, either full-time or by taking on a few gigs to supplement your wages, you'll need to make estimated tax payments on that money, as well as to cover the associated self-employment (SE) tax, which is the independent contractor's equivalent of payroll taxes.

The estimated tax requirement also applies to any other taxable income not subject to withholding, such as gambling winnings or investment earnings, which are sort of both sides of the same coin, if you think about it.

Estimated tax payments are made four times a year: April (along with your annual filing for the prior tax year), June, September, and then January of the next year. The IRS prefers you make four equal payments, preferably electronically, although it still accepts check payments along with Form 1040-ES.

Now is the time to evaluate your 2024 expected earnings and get your estimated tax payment plan in place. Shorting the IRS on 1040-ES amounts could leave you open not only to the due estimated taxes your underpaid, but also penalties and interest charges.

5. Find a day camp for your kids. I know, it's not even officially spring yet, but working parents know that they're going to need child care for their youngsters when school's out for the summer. Finding a day camp that meets your kids' interests and your care and security requirements takes some time. Also, the best ones fill up quickly.

Day camps are good beyond occupying your youngsters while you and your spouse are at work. You can use at least part of the camp's cost to claim the child and dependent care credit. Even better, since it's a tax credit, it reduces your tax bill dollar-for-dollar once you've calculated ow much you owe. Depending on your income, the number of dependent children at the camp and the camp's costs, the credit could provide a tax break of up to $1,050 for care of one child or as much as $2,100 for camp care costs of two or more children.

This tax credit for this summer's camp costs won't apply until your file your 2024 return next year. But this year you'll have that tax planning knowledge, along with the more important parental peace of mind that your youngsters are entertained, educated, and otherwise supervised while you're at work.

More March Tax Moves: That's plenty of tax tasks to think about this first full week of March, but if you want more to fill up the rest of the month's 31 days, check out the ol' blog's right column.

There you'll find the latest monthly tax moves, listed by dates under the countdown clock that's keeping track of the rapidly dwindling time remaining until to Tax Day 2023.

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