Part 1: End of Year Tax Tips

Part 1: End of Year Tax Tips







With two months left before the new year, it may be time to focus on reducing your federal tax bill. This might not be everyone’s favorite subject area, but the benefits of doing so can be substantial.

For individual tax filing, look at the overall impact of potential strategies on 2023 and 2024-on. The goal is to be efficient with your taxes now and later. Most benefit by accelerating write-offs and deferring taxable income. Others take the opposite approach. Overall, it depends on your situation. IEC works with clients and with their tax professionals as needed to develop and move efficient tax strategies forward.

People who itemize deductions have the most flexibility in shifting write-offs. People whose deductions put them on the line between itemizing and taking the standard deduction could benefit from bunching itemized deductions every other year, and taking the standard deductions in alternate years.

Increase your 401(k) or other retirement plan to max out your yearly contribution before year end (IRAs have 4/15 deadline). If under the $10,000 cap and if allowed, pay your property tax bill for next year in December of this year in order to deduct it for 2023. If you pay your January 2024 mortgage bill before year-end, you can deduct the interest portion for 2023.

Bunch into 2023 charitable gifts you would normally give over multiple years, maybe with a donor-advised fund account.

When donating to charitable organizations, contribute appreciated property like stocks directly. If you’ve owned property for more than a year, you can deduct its full value when you itemize (in most cases). Neither you nor the charity pay tax on the appreciation if you transfer the property directly.

You can transfer up to $100,000 yearly from IRAs directly to charity, called a qualified charitable distribution. QCD’s count as RMDs, but they’re not taxable and they’re not added to your AGI. This can be a good strategy for taxpayers that take the standard deduction and don’t itemize. Qualified charities are generally 501(c)3 organizations.

If you already have high medical expenses (near or above 7.5% of adjusted gross income), think about incurring additional medical expenses before year end. Refer to IRS Pub. 502 for a list of eligible medicals.

Other quick points:
Contribute the maximum amount allowed to your Health Savings Account (HSA)
When you review previous year returns, review your withholding to ensure you are having the right amount of taxes withheld
Consider a Roth conversion by looking at current year taxes. Generally it’s smart to make a conversion if it’s a relatively low income year and you don’t mind incurring taxable income on the conversion.

Part 2 will cover investments, business taxes, and gifting.