Helpful Year End Tax Tips for 2023

As the year draws to a close, it’s crucial to carefully consider your potential tax strategies.

1. Postpone Income Until 2024
If you anticipate being in a lower tax bracket next year, consider delaying some income until 2024 to help lessen tax burdens in 2023. This could be achieved by postponing a year-end bonus or deferring collections of business debts, rents, or service payments. By doing so, you could potentially delay the tax payment on this income until the following year in 2024.

2. Advance Deductions
Look for ways to bring forward deductions into the current tax year. If you itemize deductions, consider paying deductible expenses like qualifying interest, state taxes, and medical expenses before year-end rather than in early 2024. Paying these expenses a bit early could impact and lessen your 2023 tax return remittances.

3. Make Contributions to Charitable Causes
If you itemize deductions on your federal tax return, you can generally deduct charitable donations. However, the deduction is capped at 50% (currently 60% for cash donations to public charities), 30%, or 20% of your adjusted gross income (AGI), depending on the nature of the donation and the recipient organization. Surplus amounts can be rolled over for up to five years.

4. Increase Withholding to Offset Tax Deficit
If you’re likely to owe federal income tax this year, consider upping your withholding on Form W-4 for the rest of the year. Although time may be limited, the main benefit is that withholding is seen as having been evenly paid throughout the year, not just when the funds are actually deducted from your paycheck. This tactic can compensate for inadequate or missed quarterly estimated tax payments.

5. Enhance Retirement Savings
Deductible contributions to a traditional IRA and pre-tax contributions to an employer-sponsored retirement plan like a 401(k) can lower your 2023 taxable income. If you haven’t yet reached the maximum contribution limit, it may be worth considering. For 2023, you can contribute up to $22,500 to a 401(k) plan ($30,000 if you’re 50 or older) and up to $6,500 to traditional and Roth IRAs combined ($7,500 if you’re 50 or older). You generally have until the end of the year to make 2023 contributions to an employer plan, and until April 15, 2024, for 2023 IRA contributions.

*Note: Roth contributions are not deductible, but qualified Roth distributions are not taxable.

6. Fulfill Required Minimum Distributions
If you’re 73 or older, you’re generally required to make minimum distributions (RMDs) from traditional IRAs and employer-sponsored retirement plans (specific rules apply if you’re still employed and contributing to your employer’s retirement plan). You must withdraw these funds by the deadline—typically, the end of the year. The penalty for failure to do so is significant: 25% of any amount not distributed as required (10% if corrected promptly).

7. Consider Year-End Investment Actions
While tax implications shouldn’t dictate your investment decisions, they’re worth considering for any year-end investment actions. For instance, if you’ve made net capital gains from selling securities profitably, you could evade tax on some or all of these gains by selling losing positions. Any losses exceeding your gains can be used to offset up to $3,000 of regular income ($1,500 if your filing status is married filing separately) or carried forward to reduce future taxes.

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