The window for many tax-saving opportunities closes on December 31st. It’s important to evaluate your tax situation while there’s still time to affect your bottom line for the 2023 tax year.
Your specific circumstances should be considered, so please reach out if you have any questions.

Charitable Contributions

There are a couple of ways to save some tax dollars when making charitable donations.

Those over age 70.5 can make gifts directly to qualified charitable organizations from their IRA accounts. This is called a Qualified Charitable Distribution (QCD). The IRA distribution is not taxable and does not increase your income. This can also be used to fulfill a required minimum distribution.

Other ways of giving include gifting appreciated securities directly from your taxable account.

Required Minimum Distributions (RMDs)

The age for taking a Required Minimum Distribution (RMD) from your own retirement account has changed over the last few years. Here is a quick breakdown to understand if you have an RMD this year or when yours will begin:

• Born in 1950 or earlier, you will have an RMD
• Born in 1951-1959, you will begin taking RMDs at age 73
• Born in 1960 or later, you will begin taking RMDs at age 75

Those with Inherited IRA accounts may need to take a required minimum distribution as well. It depends on when you inherited the IRA account.

Our team will reach out to you if you have a Required Minimum Distribution that will not be satisfied by year-end.

HSA & FSA Accounts

If you have a Health Savings Account (HSA) and are eligible to make contributions, you have until the April tax filing deadline to make 2023 contributions. Funds in your HSA can continue to build up to be used for future medical expenses.

If you have a Flexible Spending Account (FSA) you may be able to rollover up to $610 into the following year or you may have a grace period to use any excess funds. Check with your employer to make sure you aren’t giving up any benefit.

IRAs and Retirement Plans

Take full advantage of tax-advantaged retirement savings vehicles. Traditional IRAs and employer-sponsored retirement plans such as 401(k) plans allow you to contribute funds on a deductible (if you qualify) or pre-tax basis, reducing your 2023 taxable income. Contributions to a Roth IRA (assuming you meet the income requirements) or a Roth 401(k) aren’t deductible or made with pre-tax dollars, so there’s no tax benefit for 2023, but qualified Roth distributions are completely free from federal income tax, which can make these retirement savings vehicles appealing.

For 2023, you can contribute up to $22,500 to a 401(k) plan ($30,000 if you’re age 50 or older) and up to $6,500 to a traditional IRA or Roth IRA ($7,500 if you’re age 50 or older). The window to make 2023 contributions to an employer plan typically closes at the end of the year, while you generally have until the April tax return filing deadline to make 2023 IRA contributions.

Roth Conversions

Year-end is a good time to evaluate whether it makes sense to convert a tax-deferred savings vehicle like a traditional IRA or a 401(k) account to a Roth account. When you convert a traditional IRA to a Roth IRA, or a traditional 401(k) account to a Roth 401(k) account, the converted funds are generally subject to federal income tax in the year that you make the conversion (except to the extent that the funds represent nondeductible after-tax contributions).

If a Roth conversion does make sense, you will want to give some thought to the timing of the conversion. For example, if you believe that you’ll be in a better tax situation this year than next (e.g., you would pay tax on the converted funds at a lower rate this year), you might think about acting now rather than waiting. (Whether a Roth conversion is appropriate for you depends on many factors, including your current and projected future income tax rates.)

Timing is Everything

Consider any opportunities you have to defer income to 2024. For example, you may be able to defer a year-end bonus, or delay the collection of business debts, rents, and payments for services. Doing so may allow you to postpone paying tax on the income until next year. If there is a chance that you will be in a lower income tax bracket next year, deferring income could mean paying less tax on the income as well.

Similarly, consider ways to accelerate deductions into 2023. If you itemize deductions, you might accelerate some deductible expenses like medical expenses, qualifying interest, or state and local taxes by making payments before year-end. Or you might consider making next year’s charitable contribution this year instead.

Sometimes, however, it may make sense to take the opposite approach — accelerating income into 2023 and postponing deductible expenses to 2024. That might be the case, for example, if you can project that you will be in a higher tax bracket in 2024; paying taxes this year instead of next might be outweighed by the fact that the income would be taxed at a higher rate next year.

2023 Deadlines

All end-of-year tax planning activities should be submitted by December 15, 2023 to ensure they are completed at the custodian. Activities after December 15, 2023 will be completed on a best-efforts basis. We will make every effort to ensure that requests submitted in 2023 are processed as quickly as possible.

Talk To a Professional

When it comes to year-end tax planning, there’s always a lot to think about. A tax professional can help you evaluate your situation, keep you apprised of any legislative changes, and determine whether any year-end moves make sense for you.