How to Reduce Tax Bill [2023] - 11 Ways for High Earners and Business Owners
Taxes can feel overwhelming, especially for high earners and business owners juggling multiple financial responsibilities. But with the right knowledge and strategies, you can take significant steps to reduce your tax burden in 2023. This guide breaks down practical, IRS-compliant ways to keep more of your money while staying on top of your financial game.
1. Understand Your Tax Liability
Your tax journey starts with understanding Adjusted Gross Income (AGI)—your total income minus certain deductions. Lowering your AGI through qualified deductions is one of the most straightforward ways to reduce your overall tax bill.
Pro tip: Contribute to traditional IRAs or Health Savings Accounts (HSAs) to lower AGI.
AGI then determines your taxable income, which is where the real tax numbers are calculated.
2. Maximize Business Expense Deductions
Business owners can reduce taxable income by deducting operating expenses. Think rent, utilities, software subscriptions, travel, and even part of your home office.
Keep receipts. The IRS wants documentation. Accurate record-keeping is key.
3. Leverage Retirement Contributions
Traditional retirement accounts reduce taxable income. In 2023:
401(k) limits: $22,500 (or $30,000 if over 50)
Traditional and Roth IRA limits: $6,500 ($7,500 if over 50)
Roth IRAs don’t reduce current taxes but offer tax-free withdrawals in retirement.
4. Use HSAs and FSAs for Medical Savings
HSAs and FSAs offer tax-advantaged ways to cover medical expenses.
2023 HSA limits: $3,850 (individual), $7,750 (family), plus $1,000 catch-up for 55+
FSAs let you set aside up to $3,050 pre-tax for healthcare expenses
5. Claim Available Tax Credits
Tax credits reduce your tax bill dollar-for-dollar.
Examples: Child Tax Credit, Earned Income Tax Credit, American Opportunity Credit, and Lifetime Learning Credit.
6. Minimize Capital Gains Taxes
Long-term capital gains (on assets held over a year) are taxed at lower rates than short-term gains.
Use tax-loss harvesting to sell losing investments and offset gains elsewhere.
7. Deduct Charitable Contributions
Donating cash? You may deduct up to 60% of your AGI.
Donate appreciated stocks or real estate to avoid capital gains tax and claim full fair-market-value deductions.
8. Understand the SALT Deduction
The State and Local Tax (SALT) deduction allows a maximum of $10,000 deduction for combined property, income, and sales taxes.
Consider timing payments (like property tax) to maximize this deduction.
9. Use a Childcare Flexible Spending Account (FSA)
Contribute up to $5,000 pre-tax ($2,500 if married filing separately).
Reduces taxable income and helps cover childcare costs.
10. Take Advantage of the Lifetime Learning Credit
Worth up to $2,000 per tax return for qualified educational expenses.
No limit to the number of years you can claim it.
11. Work with a Tax Professional
Tax laws change. CPAs and licensed tax pros can help you maximize deductions, ensure compliance, and avoid costly mistakes.
FAQs
Tax credit vs. deduction? Deductions reduce taxable income. Credits reduce the tax you owe.
What expenses can I deduct as a business owner? Only "ordinary and necessary" ones. Keep thorough records.
How do I lower taxable income fast? Retirement contributions, HSA deposits, and strategic giving.
Conclusion
With some planning and the right tools, reducing your 2023 tax bill is within reach. Whether you’re investing in retirement, running a business, or making charitable donations, the goal is to keep more of your hard-earned money. Don’t hesitate to get professional help—it could save you thousands.
Need support? NEST Financial brings 23+ years of expertise to help you navigate complex tax situations. Book a no-obligation consultation today.
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DISCLAIMER: This content is for educational purposes only and not tax or financial advice. Contact info@nestfinancial.net for personalized guidance.