Owed the IRS Money in 2023? Here's How to Avoid a Repeat in 2024

In 2023, the IRS issued 85.9 million refunds. The average refund amount was $2,753. But what if you didn't get a refund last year, but rather, owed money? 

Owing money to the IRS isn't necessarily a bad thing. In fact, it can be argued that it's a good thing.

When you receive an IRS refund, it means you paid more taxes on your income during the year than was necessary. When you owe money, it means you got to keep more of your wages as you earned them.

The problem with owing money, though, is that many people don't have the funds to pay the IRS when they realize they're on the hook. SecureSave reports that 63% of Americans don't have enough money in savings to cover an unplanned $500 expense. So it stands to reason that many people would end up in a tough spot having to write the IRS a check.

If you owed money on your taxes in 2023, you may be looking to avoid that scenario in 2024. The good news is that you still have time to reduce your tax burden, even though 2023 is now behind us.

It's not too late to contribute to certain tax-advantaged accounts

There are different steps you can take to lower your tax burden. One such step is to sell losing investments in your brokerage account. You can use capital losses to offset capital gains, and you can also use losses to offset ordinary income to a limited extent.

The problem, though, is that if you didn't already take losses in your account in 2023, it's too late to do so now. Remember, the tax return you're filing in 2024 is the one associated with the 2023 tax year. So in the context of this specific strategy, that ship has sailed.

However, the good news is that it's not too late to contribute money to two different tax-advantaged savings plans for 2023 -- an IRA and an HSA. 

In 2023, IRA contributions maxed out at $6,500 for savers under 50 and $7,500 for those 50 and over. You have until April 15, 2024 -- this year's tax-filing deadline -- to contribute money to your 2023 IRA and have it lower last year's tax bill.

Meanwhile, in 2023, HSAs maxed out at $3,850 for savers under 55 with individual coverage and $7,750 for savers in that age group with family coverage. For those 55 and over, these limits were $4,850 and $8,750, respectively. 

It's not too late to put money into your 2023 HSA if you were eligible for one of these plans last year based on your insurance coverage. And you have until the tax-filing deadline this year to finish contributing.

In 2023, the requirements for an HSA for individual coverage were a minimum deductible of $1,500 and an out-of-pocket maximum of $7,500 or less. For family coverage, it was a minimum deductible of $3,000 and an out-of-pocket maximum of $15,000.

Work with a professional to lower your tax burden

Owing money to the IRS can be an unpleasant experience, especially when you don't have the cash to cover a tax bill. If that's not a scenario you want to land in again, make an appointment with a tax professional this year so you can strategize ways to lower your taxes. 

Of course, you may decide that owing a bit of money isn't so bad based on the logic above. If you're okay with owing the IRS, make sure to set some funds aside in your savings account so you can write a check should one be due. But if you'd rather not land in that position, you can take steps to avoid it.