Year-End Tax Planning 2023

Year-end tax planning is a sort of double-event this year, due to 1) the approaching 2023 year-end, and 2) the 2017 TCJA tax cuts expiring at the end of 2025 (sooner than it sounds) – meaning limited time to take advantage of Roth IRA conversions and certain gifting strategies. There are a number of items and trust strategies that can be planned in advance. This week will be Part 1 and next week Part 2.

Part 1 includes basic, yearly items that can be addressed in these final months of 2023:

  1. Have you maxed out your 401k? Many people do not know they can temporarily increase 401k contributions through December 31st to reach the $22,500maximum contribution (those age 50 and older get an extra $7,500 catch-up contribution, for a total of $30,000). Lots of 401k or 403b plans allow participants to contribute 25-30% – or even 100% of pay – and then revert to a lower contribution rate on January 1st of next year.
  • These 401k contributions can be tax-deductible unless you are contributing to a Roth 401k (which can be an excellent idea too).
  • It is not too late!

  1. For those who have already maxed out the 401kfor 2023 (great job!) think about contributing the same dollar amount per paycheck to another savings vehicle through the end of the year…such as a vacation fund, emergency fund or kids’ college funds.
  2. Don’t have a 401k?Consider contributing to a tax-deductible IRA if you are under the income limit. The deadline is April 15th of next year to make the 2023 contribution.
  3. For non-working spouses without access to a 401k,consider contributing from the working spouse’s income to a separate IRA; this vehicle is called a “spousal contribution” to an IRA and can be tax-deductible, depending on income level.
  4. Are you Self-Employed? How many employees do you have, if any? If it is only the self-employed person (or one with a small handful of employees) consider a tax-deductible contribution to a SEP-IRA. SEP contributions can be as high as $66,000for the self-employed person and can be done as late as September of NEXT year or upon filing the business’ tax return.
  5. “Tax loss selling”. Check with your financial adviser if there are investments in non-IRA accounts with losses. These capital losses can be “realized” (meaning the investment is sold for a loss) and the losses used to offset the capital gains in a portfolio and can be carried forward indefinitely. This selling needs to be done by December 31st. Check with your tax adviser!
  6. If you inherited an IRA in 2022 (or before 2020)then you may need to take an “RMD” (Required Minimum Distribution) from the IRA by December 31st of this year. Ask me about this one.
  7. If you are age 73 or “better”,it is time to take an RMD that represents the total of ALL of your IRA, 401k or pension (or other annuity) balances by December 31st of THIS year.
  • There is also a useful charitable workaround for RMDs BUT the charitable part should be taken out BEFORE the regular RMD.

For all of these items – and more – there is still time in 2023 to accomplish valuable tax-deductions or to create new savings vehicles beyond your imagination!

Please ask for additional ideas and strategies, especially for those who are self-employed or if their income is much higher (or lower) than last year. 

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.

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