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Year-end Planning Checklist

Year-end Planning Checklist

November 01, 2023

With year-end quickly approaching, it is time to think about moves that may help lower your tax bill for this year and next. As we come to the end of 2023, we witnessed a relatively quiet year regarding tax legislation, but 2022 was not. The Inflation Reduction Act passed in August 2022, and the SECURE 2.0 Act passed late in December 2022 have provisions that became effective this year. The Inflation Reduction Act includes credits for new and used clean (EV) vehicles. The SECURE 2.0 Act contains numerous retirement plan-related changes.

We have compiled a checklist of year-end tax issues and actions that may help you save tax dollars if you act before year-end. Not all of them will apply to you, but you (or a family member) may benefit from many of them. In the meantime, please review the following list and contact us at your earliest convenience so that we can discuss which tax-saving moves might be beneficial:

Year-End Tax Planning Checklist and Potential Actions for Individuals

  • Has your marital status changed during the year? Has there been a change in the number of your dependents?

  • High-income taxpayers must be careful of the 3.8% net investment income (NII) tax. Taxpayers who may be subject to this tax should consider ways to minimize NII for the remainder of the year by, for example, not selling stock or other investment property. Higher-income individuals must be wary of the 3.8% surtax on certain unearned income (e.g., dividends, interest, capital gains, etc.). The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over a threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case).

  • As year-end nears, the approach taken to reduce or eliminate the 3.8% surtax will depend on the taxpayer’s estimated MAGI and NII for the year. Some taxpayers should consider ways to reduce (e.g., through deferral) additional NII for the balance of the year, others should try to reduce MAGI other than NII, and some individuals will need to consider ways to reduce both NII and other types of MAGI. An important exception is that NII does not include distributions from IRAs or most other retirement plans.

  • The 0.9% additional Medicare tax also may require higher-income earners to take year-end action. It applies to individuals whose employment wages and self-employment income total more than an amount equal to the NIIT thresholds, above. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward the end of the year to cover the tax. This would be the case, for example, if an employee earns less than $200,000 from multiple employers but more than that amount in total. Such an employee would owe the additional Medicare tax, but nothing would have been withheld by any employer.

  • Long-term capital gain from sales of assets held for over one year is taxed at 0%, 15% or 20%, depending on the taxpayer's taxable income. If you hold long-term appreciated-in-value assets, consider selling enough of them to generate long-term capital gains that can be sheltered by the 0% rate. The 0% rate generally applies to net long-term capital gain to the extent that, when added to regular taxable income, it is not more than the maximum zero rate amount (e.g., $89,250 for a married couple). If, say, $5,000 of long-term capital gains you took earlier this year qualifies for the zero rate then try not to sell assets yielding a capital loss before year-end, because the first $5,000 of those losses will offset $5,000 of capital gain that is already tax-free.

  • Postpone income until 2024 and accelerate deductions into 2023 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2023 that are phased out over varying levels of AGI. These include deductible IRA contributions, child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to accelerate income into 2023. For example, this may be the case for a person who will have a more favorable filing status this year than next (e.g., head of household versus individual filing status), or who expects to be in a higher tax bracket next year.

  • If you believe a Roth IRA is better for you than a traditional IRA, consider converting traditional IRA money invested in any beaten-down stocks (or mutual funds) into a Roth IRA in 2023 if eligible to do so. Keep in mind that the conversion will increase your income for 2023, possibly reducing tax breaks subject to phaseout at higher AGI levels. This may be desirable, however, for those who will be subject to higher tax rates in the future.

  • It may be advantageous to try to arrange with your employer to defer, until early 2024, a bonus that may be coming your way. This might cut as well as defer your tax. Again, considerations may be different for the highest-income individuals.

  • Many taxpayers won't want to itemize because of the high basic standard deduction amounts that apply for 2023 ($27,700 for joint filers, $13,850 for singles and for marrieds filing separately, $20,800 for heads of household), and because many itemized deductions have been reduced or abolished, including the $10,000 limit on state and local taxes; miscellaneous itemized deductions; and non-disaster related personal casualty losses. You can still itemize medical expenses that exceed 7.5% of your AGI, state and local taxes up to $10,000, your charitable contributions, plus mortgage interest deductions on a restricted amount of debt, but these deductions will not save taxes unless they total more than your standard deduction.

  • Some taxpayers may be able to work around these deduction restrictions by applying a bunching strategy to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good. For example, a taxpayer who will be able to itemize deductions this year but not next will benefit by making two years' worth of charitable contributions this year.

  • Consider using a credit card to pay deductible expenses before the end of the year. Doing so may increase your 2023 deductions even if you do not pay your credit card bill until after the end of the year.

  • If you expect to owe state and local income taxes when you file your return next year and you will be itemizing in 2023, consider asking your employer to increase withholding of state and local taxes (or make estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2023. But this strategy is not good to the extent it causes your 2023 state and local tax payments to exceed $10,000.

  • Personal casualty and theft losses are deductible only if they're attributable to a federally declared disaster and only to the extent the $100-per-casualty and 10%-of-AGI limits are met.

  • If the taxpayer has education expenses, did they take full advantage of the AOTC and Lifetime Learning Credit? If not, consider trying to accelerate expenses into this year.

  • The age at which taxpayers must begin taking RMDs from a 401(k) plan or IRA has increased to 73 in 2023.

  • Taxpayers who are 70½ or older by the end of the year should consider whether to make a charitable contribution (qualified charitable distribution, or QCD) from their traditional IRA. QCDs are excluded from the taxpayer’s income but are not deductible. However, the taxpayer may still claim the entire standard deduction.

  • Review the amount set aside for next year in health FSA and HSAs to ensure to full utilization of these amounts in 2023. Consider rolling them over to the next year to the extent necessary and possible.

  • Make sure to take full advantage of the annual gift tax exclusion ($17,000 for 2023). Remember this amount is per person, for both donors and donees. For example, a married couple could give a married child and their spouse up to $68,000 (4 x $17,000) without incurring gift tax.

  • Consider whether to claim uninsured, unreimbursed casualty or theft losses related to a federally declared disaster on this year's return or on last year’s return. It may be necessary to settle insurance or damage claims related to this disaster by year’s end to claim the deduction.

  • Review whether any kiddie tax issues arise in 2023.

These are just some of the year-end steps that may be taken to save taxes. Again, by contacting us, we can discuss particular issues that may be of interest to you.






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