“Year-end Tax Planning”

As the calendar year winds down, it’s the perfect time to think about your finances and make strategic moves to reduce your tax bill. Here are some straightforward year-end tax planning ideas that many should consider well before December so that you don’t join the mad rush of others who delayed their planning!

1. Maximize Retirement Contributions:

•    Contribute the maximum allowed amount to your 401(k) or IRA.  For 2023 this is $22,500 or $30,000 if over age 50 for a 401(k) or 403(b) plan.  For an IRA it is $6,500 or $7,500 if over age 50.
•    These contributions can reduce your taxable income, helping you save for retirement while lowering your tax bill.

2. Charitable Giving:

•    Donate to your favorite charities before December 31.
•    You can deduct your charitable contributions, so consider giving to causes you care about.  If you are undecided about exactly which charities you want to contribute towards, you can even consider starting a Donor Advised Fund to still get the tax benefits within the calendar year.

3. Review Investment Portfolio:

• Assess your investment gains and losses inside of your non-retirement accounts.
• Consider selling investments with losses to offset gains and reduce your capital gains tax.

4. Health Savings Account (HSA) Contributions:

•    If you have an HSA, contribute the maximum allowed.
•    HSA contributions are tax-deductible and can be used for qualified medical expenses tax-free.

5. Flexible Spending Account (FSA) Spending:

•    If you have an FSA, use the funds before they expire.
•    FSAs typically have a “use it or lose it” policy.

6. Check for Tax Credits:

•    See if you qualify for tax credits, such as the Earned Income Tax Credit or Child Tax Credit and then make sure your accountant is aligned.
•    Credits directly reduce your tax liability.

7. Adjust Withholding:

•    Review your W-4 to make sure your withholding aligns with your expected tax liability.
•    Adjust if necessary to avoid overpaying or underpaying taxes.

8. Required Minimum Distributions (RMDs):

•    If you’re 73 or older, don’t forget to take your RMDs from retirement accounts.
•    Failing to do so can result in hefty penalties.

These are just some of the high-level tax planning ideas as we approach the 4^th quarter of 2023.  By taking these steps, you can be proactive in managing your taxes and potentially keep more of your hard-earned money in your pocket. Remember, it’s always a good idea to consult with a tax professional or financial advisor to tailor these strategies to your unique situation. Start now, and you’ll be in a better financial position when tax season arrives.