Although those of you living in California may have just finished filing your 2022 tax returns, it’s already time to begin thinking about your 2023 taxes! Before the year rushes to a close, we are looking ahead for year-end tax strategies to consider. We’d like to let you know what we’ll be focusing on, and we have some suggestions for you to think about as well.
On behalf of all the beleaguered tax-preparers, we are happy to say there have been relatively few changes to tax regulations this year. As a result, the list below may look familiar. If you have any questions or if any of these items are of particular interest, please give us a call. Also, if you plan to make year-end gifts, please let us know well before the deadlines below so we can be sure your wishes are fulfilled.
What We’ll Be Doing
- We will selectively harvest tax losses, or use carry-forward losses from last year, to offset gains. Between now and year-end we will be reviewing portfolios with an eye toward tax savings. However, we don’t let the tax impact alone dictate investment moves, and we will always evaluate whether it makes good economic sense too.
- If we have cash to invest in mutual funds, we’ll do so after the fund’s year-end distribution date.
- We will make sure eligible IRAs are funded by the deadline of April 15, 2024 and coordinate the transfer of funds as needed.
- We will consider your tax profile and circumstances to determine whether a partial Roth conversion is appropriate. We will work with your tax preparer to weigh the pros and cons when it comes to tax ramifications.
- If you are age 73 or older, we will make sure that the full required minimum distribution is made from your IRA.
What You Can Do
If you would like us to help facilitate any of the following strategies, please let us know before December 1st, so that we can be sure to implement them before the end of the year:
Tax-deferred Savings
- If you have earned income and are eligible, plan to fully fund your retirement plans before December 31st. For 2023, you can contribute up to $22,500 to your 401(k) or 403(b). If you are over 50, you may also “catch up” and contribute up to $6,500 more to your plan.
- Make an IRA Contribution of up to $6,500 ($7,500 for “catch up”) before April 15, 2024, if you have earned income.
- If you have a High-Deductible Health Plan you can fund a tax-deferred Health Savings Account up to $3,850 per individual or $7,750 per family (plus $1,000 for “catch up” if you are 55 or older) before April 15, 2024.
Gifting
- The standard deduction for 2023 has increased to $13,850 ($27,700 for married filing jointly) so you may want to cluster your charitable gifts into alternate years to maximize your itemized deductions. If you contribute to a Donor Advised Fund, you can pre-fund your giving with a large transfer and then make grants to your favorite charities on your own, separate timetable.
- The deductibility of cash contributions to Donor Advised Funds is limited to 50% of AGI, and the deductibility of appreciated stock contributions is capped at 30% of AGI. If your gifts exceed the AGI limit, you may be able to carry forward the deduction for up to five years.
- Gifting shares of low-basis stock (or mutual fund) to a 501(c)3 organization or Donor Advised Fund is often a good choice, as you can benefit from a tax deduction and remove unrealized capital gains from your portfolio and estate at the same time. We are happy to discuss this as it applies to your specific situation.
- If you plan to make Qualified Charitable Distributions (QCDs) from your IRA, please make sure all checks are sent by December 1st t0 account for any processing delays with the organizations you’re gifting to. Please also notify us of your gifting intentions in advance so we can ensure there’s enough cash in your IRA.
- If you would like to make a gift to friends or family, the annual individual gift tax exemption is now $17,000 per person. Keep in mind that direct payments to an institution for medical bills or tuition can be made in addition to this gift exemption.
- 529 College Savings Plans offer great tax advantages if they are funded early enough to make the most of the tax-free growth. Although the individual gift tax exemption in 2023 is $17,000, you may contribute a lump sum of up to $85,000 per child to a 529 plan as if it were spread over a 5-year period.
We want your year-end tax planning to go as smoothly as possible, so please contact us soon if you have questions or would like to consider any of the above strategies. We are happy to coordinate transfers, paperwork and other logistics, but we will need to work within Schwab’s deadlines for certain action items.
