“Smart Tax Strategies to Implement Before the New Year”

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10 Year-End Tax Moves to Consider

As the year draws to a close, it’s an opportune moment to maximize deductions, claim tax credits, and boost your retirement savings. Here are 10 tax strategies to consider before the new year.

1. Contribute to Retirement Accounts

For the 2023 tax year, contribution limits have increased. Ensure you’ve maximized contributions to your 401(k) and IRA accounts. You can contribute up to $6,500 to IRAs, with an additional $1,000 if you’re 50 or older. For 401(k) plans, the limit is $22,500, plus a $7,500 catch-up contribution for those 50 and older.

2. Consider Your Roth Options

Roth IRAs and Roth 401(k) plans are funded with after-tax dollars, offering tax-free withdrawals in retirement. Check income limits for Roth IRAs, which start phasing out at $138,000 for single filers and $218,000 for joint filers in 2023. You might also consider converting traditional IRA funds to a Roth IRA, but be mindful of the tax implications.

3. Take Required Minimum Distributions to Avoid Penalties

At age 72 (or 73 if you turn 72 in 2023 or later), you must take required minimum distributions (RMDs) from tax-deferred retirement accounts. Failure to do so can result in a 50% excise tax on the amount you were supposed to withdraw. Consider making a charitable donation directly from your IRA to satisfy your RMD without increasing your taxable income.

4. Offset Your Capital Gains

Use capital losses to offset any capital gains you’ve made during the year. You can offset all your capital gains and use up to $3,000 of remaining losses to reduce your regular income. Leftover losses can be carried forward to future years.

5. Review Itemized Deductions

If your itemized deductions exceed the standard deduction, consider itemizing. Potential deductions include mortgage interest, state and local income taxes, property taxes, sales tax, gambling losses, moving expenses, and losses from federally declared disasters.

6. Check Health-Related Deductions

Review health-related expenses before year-end. Contributions to Health Savings Accounts (HSAs) are tax-deductible, and you can contribute up to $3,850 for single taxpayers and $7,750 for families. Also, remember to spend any use-it-or-lose-it funds in your Flexible Spending Account (FSA). If you itemize, you may be able to deduct medical expenses that exceed 7.5% of your adjusted gross income.

7. Make a Charitable Donation

If you itemize, you can deduct charitable contributions of money or property, up to 60% of your adjusted gross income. Ensure the charity and contribution qualify for a tax deduction according to IRS rules.

8. Take Advantage of Increased 529 Limits

While contributions to 529 educational plans aren’t tax-deductible, the funds grow tax-free and are not taxed when used for qualifying educational expenses. In 2023, you can contribute up to $17,000 per beneficiary, up from $16,000 in 2022.

9. Defer Income

If you expect a large year-end bonus or payment for freelance work, consider deferring it to next year to reduce this year’s tax liability. While you can’t avoid taxes altogether, deferring income can help you manage your tax burden more effectively.

10. Look for Eligible Tax Credits

Even though many pandemic-era tax credits have expired, you may still qualify for credits like the Earned Income Tax Credit, Child Tax Credit, Child and Dependent Care Credit, Saver’s Credit, and Residential Clean Energy Credit.

The Bottom Line

Though your 2023 taxes aren’t due until April 2024, making these tax moves before year-end will prepare you for the upcoming tax season. Expect to receive year-end paperwork starting in January, including W-2 and 1099 forms. Organize these documents to streamline your tax filing process.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with ease.

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