Year-End Tax Planning Considerations

As we approach the end of 2023, it would be a good time to evaluate some year-end planning strategies that could reduce or mitigate your overall individual tax burden for the year. For those taxpayers that itemize deductions, you garner the most flexibility to accelerate write-offs, thus deferring taxable income.

Considerations for itemizers:

State and local taxes (SALT)The maximum deduction allowed for taxes paid is $10,000. If you are below this $10,000 cap, you might consider prepaying your NYS quarter 4 estimated tax payment or NYS County property tax bill before December 31st to accelerate the deduction.

Mortgage interest – To claim an additional month of mortgage interest, consider paying your January 2024 mortgage payment before the end of 2023.

Medical expenses – Medical expenses are only deductible to the extent that they exceed 7.5 percent of adjusted gross income (AGI). If you are near this threshold, consider accelerating appointments or filling prescriptions before the end of the year.

Charitable contributions – If you intend to make any last-minute charitable contributions, make sure that the check is in the mail before year-end. Any contributions made by credit card are generally deductible in the year charged. You might also consider purging any household items that have accumulated such as unused clothing or furniture by donating the items to a qualified charity or local thrift store.

Other planning considerations:

Electric vehicles (EV) credits – If you bought a new or used EV, you may qualify for a credit up to $7,500 or $4,000, respectively. To be eligible:

  • The manufacturer’s suggested retail price cannot exceed $55,000 for sedans and $80,000 for pickup trucks, SUVs, and vans.
  • Your modified adjusted gross income cannot exceed $300,000 for married filing joint filers, $250,000 for head of household filers, and $150,000 for single filers.
  • For EV’s purchased in 2024, you have the option to monetize the tax credit whereby you transfer the EV credit to the dealership when purchasing the vehicle, which in effect reduces the purchase price.

Retirement Plans

  • If 2023 is your first required minimum distribution (RMD) year, you have the option to take the RMD in the next year by April 15, 2024. Keep in mind that you will still need to take your 2024 RMD as well, by the end of 2024.
  • If you participate in an employer-sponsored 401(k) plan, consider maximizing your annual contribution. For 2023, the maximum contribution is $22,500 with an additional catch-up of $7,500 if you are 50 years or older.
  • For an IRA, you can contribute up to $6,500 with an additional catch-up contribution of $1,000 if you are 50 years or older.

Investments – Capital Losses

  • On your tax return, capital losses are netted against any capital gains. If you have a remaining net capital loss, you may offset up to $3,000 against other income in any given year. Any excess capital loss not absorbed can be carried forward to the next year.

Consider evaluating your investment portfolio activity near-year end to determine if you will have any net taxable capital gains. If so, you might consider selling some of your losing stock positions to generate capital losses to offset those gains. While considering which dud stocks to sell, it is important to watch out for stock losses that would be designated as “wash sales,” which cannot be written off. A wash sale is when you purchase substantially identical securities up to 30 days before or after the sale. This loss is added to the tax basis of the replacement securities and will not generate a capital loss for that year.

Withholdings – If you expect to owe taxes when you file your 2023 tax return, you might consider increasing your withholding taxes for the remaining part of the year.

Short-term tax-free rental of your home – If you rent your personal residence or a vacation home for 14 days or less during the year, the rental proceeds received are not taxable on your return.

Utilize your annual gift tax exclusion – You are allowed to gift a person up to $17,000 ($34,000 for married couples), with no gift taxes due, no gift tax return required to be filed and no reduction in your lifetime estate tax exemption. In addition, the recipient receives the gift tax-free.

Fund college savings plans – You can contribute up to $85,000 per beneficiary in 2023 ($170,000 for married couples) to a 529 college savings plan and avoid gift tax. If you choose to contribute the maximum amount, the contributions would be treated as gifts to the beneficiary $17,000 ($34,000 for married couples) annually for five years (2023 through 2027).  It is important to note that New York State only allows you to deduct up to $5,000 per year ($10,000 for married couples) in contributions to a NYS 529 college savings plan, but contributions must be made before December 31st.

Contact your Tronconi Segarra & Associates advisor for more information on this matter.


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