Quick, Last-Minute Actions for 2023 Tax Savings

December 28, 2022

It’s easy to forget those tax planning strategies until the week before the new year, but all is not lost. Act now to take advantage of these clever tips that could save you money when 2023 taxes are due.

Gift money to family now or contribute to their college fund.

Gift money to family. 
Gifts of up to $17,000 per donee can be made (to an unlimited number of individuals) in 2023 to save on gift and estate taxes, if made prior to the end of the calendar year. These gifts will be sheltered by the annual gift tax exclusion and will not be taxed. Any unused gift tax exclusions cannot be carried over to the following year(s).

Another potential benefit of gifting money to family is the taxes saved in family income tax where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

Contribute to a 529 plan.
Along the same lines as gifting money to family, contributing to a state sponsored 529 plan is giving funds to a beneficiary for future educational expenses. In addition, certain states allow for a tax deduction if contributing to their 529 plan. Tax benefits include tax-free earnings and tax-free distributions as long as its used for qualified education expenses. Local 529 plans can be looked into at the following websites:

Make charitable donations.

Donate highly appreciated long-term assets.
Long-term assets that have increased in value greatly, or highly appreciated assets, can be donated as a way to optimize your tax savings. For example, donating property, as opposed to selling it and then donating the proceeds, allows you to take a charitable donation tax deduction, avoids a capital gains tax on the sale of the property, and removes your responsibility for any estate tax that may have come with the property.

Make a qualified charitable distribution (QCD).
The qualified charitable distribution rule allows individuals with traditional individual retirement accounts (IRAs) to deduct the amount of their required minimum distribution (RMD) from their tax returns if the money is given to a qualified charitable organization. By choosing a QCD you can avoid potentially being pushed into a higher income tax bracket. 

Bunch charitable contributions.
Instead of making the same charitable contribution amount every year, make a larger contribution every few years. This strategy, known as bunching, will allow you to take a much larger tax deduction in the years that donations are made, that would exceed the sum of those deductions available if taken on a yearly basis (if contributions were made every year).

Not sure which charitable organization to support? Consider donating to a donor-advised fund now to make yourself eligible for an immediate tax deduction, setting aside money for charity. This money will grow tax-free in the fund until you designate where it should be donated.

Convert a traditional IRA to Roth IRA (backdoor Roth IRA).

Individuals are limited to making contributions to Roth IRAs based on their income. Therefore, high income individuals may want to consider the backdoor IRA as a workaround to these limitations. A Roth IRA offers certain tax advantages such as tax-free earnings, no mandatory withdrawals, and tax-free withdrawals upon retirement. However, keep in mind that the conversion to the Roth IRA is a taxable event so make sure to discuss with your tax advisor.

Although these tips can help maximize your tax savings, the most important tip is to ensure that you have a personalized examination of your unique circumstances. Every tax situation is different, so be sure to speak with your tax advisor about whether these moves make sense for you.

Updated 11.30.23


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