Getting an early start on tax planning instead of waiting until year-end gives you more time to meet with your TFG tax and wealth advisors and make the financial moves that can reduce your tax burden. And, the faster you file your return, the faster the IRS can process your return (and any potential refund). Use this checklist to help you prepare to tackle your taxes.
Depending on what tax bracket you find yourself in next year, higher or lower, you may want to accelerate or delay income respectively, but there is plenty more you can do. Use this list to help you prepare for year-end, whether you are an individual or a business owner.
- Explore using capital loses to offset realized gains. You may want to use tax loss harvesting in investment accounts. For example, you might sell marketable securities whose value is down in order to offset gains in other assets.
- Maximize retirement plan contributions. The 2023 401(k) tax contribution limit is $22,500 for those under age 50, and $30,000 for those 50 and older. Self-employed individuals can also make employer contributions, up to a combined maximum of $66,000, or $73,500 for those 50 and over.
- Consider Roth IRAs. With the value of many portfolios down, this may be an ideal time to convert to a Roth You can directly fund a Roth IRA or, if you’re over the income limit, consider the Roth back door strategy.
- Maximize current tax-free gifting opportunities. Currently, an individual can gift up to $17,000 per year to anyone through the annual exclusion. The current lifetime exemption for individuals is $12.92 million to heirs free of federal gift/estate taxes; married couples can leave up to $25.84 million. Those lifetime exemption amounts are scheduled to be cut in half starting in 2026, so plan ahead.
- Consider contributing to a 529. This strategy may make sense if you have children or grandchildren (or a niece or nephew – pretty much anyone) whose education you want to help fund. While there are some contribution limits, withdrawals from these plans can pay for undergraduate and some K-12 education, as well as a host of education-related expenses.
- Plan to spend the required number of days in your preferred tax domain. Higher-tax states may check just how many days you lived in a lower tax state to establish tax domicile.
- Reduce your marginal tax rate by deferring income if it makes sense. If you can accelerate charitable donations or medical expenses into this year as well, this may have a significant effect on the taxes you pay.
- Consider asset location strategies. Hold tax inefficient assets in a tax deferred account, tax preferential assets like stocks in a taxable account, and locate highest expected return assets in a Roth account.
- Donate required minimum distributions from retirement accounts. Donating the funds directly as a qualified charitable distribution excludes the amount donated from taxable income.
- Consider your options for charitable contributions. With the higher standard deduction, you may benefit by “bunching” your charitable contributions together every other year. Also consider donating appreciated marketable securities held at least one year rather than selling those assets, which can allow you to deduct the full fair market value of the asset and avoid capital gains and Net Investment Income taxes. Or use a donor-advised fund to deposit assets into an account in a single year, thus maximizing the deduction, but spreading out distributions to charities over many years.
- Take steps to maximize your qualified business income (QBI) deduction if you own a qualified. This may include deferring income to next year, reducing your salary, making deductible retirement plan contributions or other actions.
- Consider rolling gains into a qualified opportunity Capital gains from an investment may be rolled over into a qualified opportunity zone investment, thereby deferring or reducing tax liability.
Contact Us: Call your TFG Accounting and Tax Professionals before year-end to discuss tax planning at 855-542-7537. IRS backlogs mean many situations have been unresolved for months to years, we can help you minimize the ramifications of these delays, and continue to monitor ongoing situations with the IRS. In addition, this is a great time to also review your estate plans. As your personal, financial, and family situations change, along with the economy, estate plans should be updated for beneficiaries and tax planning as well. Questions? Email CPA@fuoco.com.
