How I'm Saving Over $10,000 on My 2023 Taxes

My tax situation is more complex than most. For starters, I'm technically self-employed and get a few different 1099 forms each year. I also own rental real estate, which is certainly a tax-advantaged form of investing, but makes filing a tax return more complicated. I also manage a small real estate investment partnership, have several retirement and non-retirement brokerage accounts, and more.

However, the complexity of my taxes also helps me get some pretty valuable deductions. Without going into detail on my specific income, spending habits, or investments, here are five of the ways I saved money on my 2023 taxes and how deductions like these can add up to thousands of dollars' worth of tax savings.

1. Retirement savings

Every year, the deduction I receive for retirement savings is the single largest money-saver on my tax return. As a self-employed individual, I have access to certain types of retirement plans that allow me to set aside far more than a traditional or Roth IRA would. Specifically, I use a SEP IRA, which had a 2023 contribution limit of $66,000.

To be clear, I didn't contribute that much. But I did set aside far more than the $6,500 traditional and Roth IRA limit.

My wife also sets aside money for retirement through her employer, which adds even more to the deduction. Our strategies complement each other well -- I invest aggressively in my SEP IRA, while she contributes money to our state's retirement system and will receive pension income after retirement.

2. Mortgage interest

To deduct your mortgage interest, you must itemize deductions. For 2023 taxes, itemizing is only worthwhile for couples whose combined deductions total $27,700 or more (the standard deduction).

One of the biggest reasons itemizing makes sense for us is that we have two homes' worth of mortgage interest to deduct. In addition to our primary home, one of our rental properties is technically considered a second home (we use it more than a certain number of days each year) and some of its mortgage interest is deductible as well.

Now, my mortgage interest deduction is rather low compared with some other homeowners I know, as we bought when mortgage rates were about 3%. If you're a more recent buyer, you might be surprised at how much this deduction could help.

3. College savings

I invest aggressively in 529 savings plans for my kids' college education. Unfortunately, I don't get to deduct contributions on my federal tax return, but they are deductible on my state taxes. With my state's (South Carolina) income tax rate 6.4%, this adds up to a significant amount of tax savings.

4. Credits for parents

I alluded to this earlier, but I'm a parent of two young children. So, we get to claim the Child Tax Credit, which gives us $2,000 back per qualifying child. In 2023, our youngest attended daycare and our older child was enrolled in after-school care, both of which qualify for the Child and Dependent Care Credit as well.

5. Generosity pays

Last but certainly not least, we give significant amounts of money to a few charitable and nonprofit organizations. And, because we itemize deductions, we're able to use them to save on our taxes. We each make donations to the universities we attended, our local animal shelter, our kids' elementary school, and a few others.

Make tax planning a year-round activity

If I add up the value of all these deductions and credits, the tax savings is well over $10,000 when compared to how much I'd have to pay if I didn't use any of them.

One important thing to keep in mind is that smart tax planning is a year-round process. Specifically, I wouldn't have been able to use my retirement account deduction to the extent I did if I waited until the last minute, instead of contributing every time I got paid. The same goes for college savings. And instead of donating to charities and nonprofits only in December (like millions of Americans do), we try to spread it out all year so we can comfortably fit more into our budget.

With some smart planning, you might be surprised at how much you could save on your taxes. And now is a great time to start thinking about it for 2024.