2023 Year End Tax Planning

As with every year, it makes sense to consider income tax planning moves that can help lower your tax bill this year. The general strategy of deferring income into next year and accelerating deductions into this year still makes sense for most people – although the ability of many people to benefit from accelerating deductions into this year has decreased over the past few years as fewer people are currently itemizing their deductions. Here are some items for you to consider.

Fully Fund Your Retirement Plan and Health Savings Accounts
- If you are a participant in a retirement plan and have not maxed out your pre-tax contributions for the year, it is always a good idea to do so to get the benefit of tax-deferred growth. Make sure you are contributing as much as your budget allows, or at least up to the point of getting the full amount of a company match. If you are covered under a qualifying high-deductible health care plan either at work or individually, consider opening and funding a Health Savings Account. Contributions are tax deductible, and, unlike individual retirement accounts (“IRA”) where contributions are limited by your income, there are no income limits. Earnings in these accounts are tax-free and withdrawals are tax-free if used for qualifying medical expenses.

Required Minimum Distributions (“RMD”)
- You are not permitted to keep retirement plan assets in your account indefinitely. RMDs must be taken annually once you reach age 73 (or later) and they are considered taxable income in the year withdrawn. If you do not take the full amount of your RMD when you are required to, you are subject to a potential penalty of up to 25% of the amount not withdrawn. If you do not need your RMD, consider having your money transferred directly from your individual retirement account to a public charity, a so-called Qualified Charitable Distribution (“QCD”). You can contribute up to $100,000 annually using this method. The benefit is two-fold: QCDs count toward your annual required minimum distribution, and they directly reduce your adjusted gross income, which can lower the impact of the net investment income tax and Medicare part B and D premium surcharges.

Donate Appreciated Stock or Mutual Fund Shares
- This allows you to deduct the fair market value of the securities if you itemize deductions and avoid paying capital gains tax. On the other hand, if you have securities that have decreased in value, sell them first to secure a tax write-off and donate the proceeds.

Roth Conversions
- Anyone can convert a traditional IRA to a Roth IRA. If you are in a lower income tax bracket now compared to the tax bracket you anticipate being in once you begin taking distributions from your traditional IRA, or if you like the idea of using the Roth IRA as an estate planning vehicle by passing assets on to your heirs income tax free, you may want to consider a Roth conversion.

Tax Loss Harvesting
- If you own securities that have not performed well during the year and currently are in a loss position, consider selling them to eliminate or minimize your capital gains for the year. If your capital losses for the year exceed your capital gains, you can deduct up to $3000 of excess capital losses from your other income.

Bunch Itemized Deductions
- Given that the standard deduction amounts have increased significantly in the past few years, many people who used to itemize their deductions no longer do so. If you can itemize deductions, consider accelerating the payment of certain expenses into 2023, especially if you expect your 2023 income to be higher than usual. Consider scheduling elective medical procedures to increase the amount of your medical expenses or make charitable donations this year instead of waiting until next year.

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