Mastering the Year-End Tax Game: 12 Strategic Tips for a Successful 2023 and Beyond

As the calendar pages turn towards the end of the year, it’s time to take a close look at your finances and make strategic moves to minimize your tax bill for 2023. With the looming threat of increased taxes after 2025 due to the sunset of various provisions of the Tax Cuts and Jobs Act, coupled with the impact of inflation on your income, it’s crucial to seize every available tax break. In this comprehensive guide, we’ll explore 12 last-minute tax tips to help you navigate the complexities of the tax code, trim your 2023 tax bill, and set the stage for financial success in the coming years.

1. Contribute to Tax-Advantaged Accounts

As the year-end approaches, consider maximizing your contributions to tax-advantaged accounts. While you have until April 15, 2024, to contribute to an IRA, workplace retirement plans like 401(k)s and 403(b)s require final contributions by December 31, 2023. Take advantage of the opportunity to contribute up to $22,500 in total combined traditional and Roth contributions, with an additional $7,500 catch-up contribution if you’re 50 or over. Traditional contributions can lower your taxable income, and don’t forget about Health Savings Accounts (HSAs) if you have a high-deductible health plan.

2. Turn Investment Losses into Tax Gains

If your investments experienced losses this year, utilize tax-loss harvesting. Sell investments at a loss, replace them with similar ones, and use the losses to offset gains and up to $3,000 of regular income annually. Be cautious of wash sale rules, which restrict selling and reinvesting in the same security within a 30-day window. Cryptocurrencies are currently exempt from these rules, but pending legislation may change this. Consult with a tax professional for guidance.

3. Consider a Roth Conversion

Explore a Roth conversion by transferring money from a traditional IRA to a Roth IRA. Though you’ll pay taxes on the converted amount, future withdrawals are tax-free, and there are no required minimum distributions. With lower investment values this year and potential tax rate increases in 2026, a Roth conversion could be advantageous.

4. Consider Itemizing

Evaluate the benefits of itemizing deductions, especially if your total deductions surpass the standard deduction. Deductible expenses include medical costs, home mortgage interest, state and local taxes, charitable contributions, and certain disaster-related losses. Plan ahead for medical expenses, ensuring they exceed 7.5% of your adjusted gross income.

5. Trim College Costs with Education Breaks

Take advantage of the American Opportunity Tax Credit for qualified education expenses during the first four years of higher education. Prepaying the first semester of 2024 in the current year can maximize this credit. Additionally, explore tax deductions for contributions to a 529 college savings account by December 31, keeping an eye on federal gift tax limits.

6. Defer Some Income

If you earn freelance or gig income, consider delaying billing until the next year to reduce your taxable income for the current year. Collaborate with your accountant to develop an optimal plan.

7. Bunch Charitable Contributions

Concentrate charitable deductions in a single year through “bunching,” skipping subsequent years to claim the standard deduction. Use a donor-advised fund to spread your giving over multiple years while benefiting from the charitable deduction in 2023.

8. Donate Appreciated Assets

Itemizers can donate appreciated assets to a qualified public charity, deducting the fair market value without paying capital gains tax. Be aware of the 30% adjusted gross income limitation.

9. Don’t Forget Contributions of Cash and Property

Itemizers can deduct cash and property contributions, up to 60% of adjusted gross income. Ensure proper documentation, such as a qualified appraisal for donations exceeding $5,000.

10. Consider Gifting to Loved Ones

Gift up to $17,000 per recipient, or $18,000 in 2024, without income tax deductions. This reduces your estate’s value without impacting your lifetime gift and estate tax exemption.

11. Don’t Forget RMDs

If you’re 73 or older, ensure you take your required minimum distribution (RMD) from retirement accounts by December 31. Missing this deadline incurs a hefty penalty. Strategize with careful planning to minimize the tax impact of withdrawals.

12. No Need for Your RMD? Consider Giving it to Charity

If you’re 70½ or older, make a qualified charitable contribution (QCD) from your IRA, up to $100,000 per individual. This qualifies as your RMD, is not subject to federal taxes, and can be made even if you don’t itemize.

Looking Ahead to 2024

Every individual’s tax situation is unique, and with inflation adjustments to tax brackets in 2024, flexibility is key to meeting your financial goals. Consult with your tax advisor or financial professional to craft a plan tailored to your needs. As you implement these last-minute tax tips, you’ll not only trim your 2023 tax bill but also pave the way for a financially successful future.