Year End Planning Points and Considerations for 2023 and Beyond

  1. Consider the use of QCDs and Donor Advised Funds.

If you are 70 ½ or older, you are able to donate a portion or all of your RMD directly to charity (up to $100,000 annual maximum). This is a great way to utilize your RMD if you regularly give to charity but otherwise no longer itemize your income tax deductions. Other tax favorable means of donating to charity is to consider making a direct donation of highly appreciated assets either directly to charity or to a donor advised fund which helps you avoid paying capital gains tax on the asset if you were to sell it. 

  1. Consider Roth IRA Conversions.

Consider your tax bracket and marital status in determining whether you can take advantage of historically low tax brackets and delayed RMDs by making Roth IRA conversions.

  1. Consider gifts to family and friends.

Take advantage of the annual exclusion and make gifts to family and friends to give them money inheritance-tax free and at a time when they can use it.

  1. Consider tax loss harvesting to offset capital gains.

As with all of the considerations that we discuss, just because it makes sense from a numbers perspective, does not mean it is the right decision for your circumstances. Keep your investment goals in mind. That being said, if you are selling securities and you will be subject to capital gains tax liability, selling other securities at a loss could help to offset your gains. This is particularly helpful if you are able to minimize short-term capital gains, which are generally taxed at a higher income tax rate than long-term capital gains.

  1. Consider contributions to 529 Plans.

In particular, consider having grandparents make contributions to 529 Plans based on the more favorable FAFSA rules. See our previous comments on this topic.

  1. Consider maxing out your retirement account contributions.

The more that you are able to save today, the more secure your retirement will be tomorrow.

  1. Review you pre-tax FSA and HSA accounts.

Your health savings accounts will carry over to the next year but your flexible spending accounts will not so make sure you spend any excess balances prior to the New Year.

  1. Manage your RMDs.

If you are 72 or older and born in 1950 or earlier, please make sure that you made your required minimum distribution.  If you were born in 1951, your first RMD year begins in 2024. Please note that for your very first RMD and only your first, you can delay taking a distribution until April 1 of the following year. That being said, if you delay, there will be two required distributions for that year.

  1. Review your asset ownership and beneficiary designations and determine if they are appropriate for your estate plan.

You may have created a new account during the year.   It is critical to review the ownership of your assets and beneficiary designations on your retirement accounts and life insurance to make sure that they are consistent with your overall estate plan.

  1. Utilize new favorable tax rules as a business owner.

If you are a small business owner and you have net operating losses (NOLs), you may be able to apply NOLs against 80% of your taxable income and if you are carrying forward large NOLs, you can utilize those losses to offset a portion of additional income from a Roth IRA conversion. The Tax Cuts and Jobs Act (under Section 199A) created the new qualified business income deduction (QBI) available to small business owners and self-employed people. It allows you to deduct up to 20% of your qualified business income (broadly speaking, your net profit) if you qualify. These are complicated topics and you should consult your tax professional if your tax situation falls into these areas.

  1. Review your budget and expense goals for the next year.

Take advantage of favorable income tax laws to build your nest egg today.

  1. Tax Cuts and Jobs Act scheduled to sunset for 2026.

The Tax Cuts and Jobs Act (TCJA) of 2017 is currently scheduled to sunset at the end of 2025, meaning significant changes are on the horizon for taxpayers. In total, there are 23 provisions from the TCJA related to individual taxes that are set to expire, but perhaps the three largest adjustments are below. Income tax brackets will revert back to pre-TCJA levels and many taxpayers will see their rates increase, likely paying 1% to 4% more in personal taxes. The standard deduction, which was doubled by the TCJA, will be reduced by half. This will cause some taxpayers to have higher tax bills and create the need once again keep up with the various expenses that can be used towards the itemized deduction. Similarly, the TCJA more than doubled the lifetime estate tax exemption (in 2024 it will be $13.61 million for individuals and $27.22 million for married couples), but this too will revert to where they were in 2017 (with inflation adjustments, this will be approximately $7 million for individuals and $14 million for married couples).

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