Year End and 2023 Tax Planning Considerations for Individuals

As we approach yearend, making time to consider what last-minute tax moves you can make to reduce your taxable income and tax bill come filing season is important. Here are some moves you can still make before the year ends and things to consider for your 2023 tax plan.

• • Retirement plan contribution limits: In 2023, qualified participants can contribute up to $22,500 to an eligible 401(k), 403(b), or 457 account (plus $7,500 catch-up contributions for those over 50). The limits on SIMPLE plans are $15,500 for standard contributions and $3,500 for catch-up contributions. IRA and Roth IRA account contribution limits are $6,500 and $1000, In addition, the IRS adjusted the phase out limits for the upcoming tax season.
  • Savers credit: Low-income retirement savers can receive up to a $1,000 credit ($2,000 if filing jointly) for contributing to qualifying retirement plans. Be careful, though; the credit begins to phase out once your Adjusted Gross Income reaches a certain level. Charitable contribution reminders: Taxpayers who are donating items of more than $500,000 in value must file a qualified appraisal with Form 8283. Filing without the correct documentation can forfeit the tax benefits of the donation.
  • Options to increase itemized deductions:
    • Pay home interest for January 2023 in December 2022.
    • Pay property tax bills due in January 2023 in December 2022 (if allowed and under the $10,000 cap).
    • Lump charitable gifts from multiple years together into one payment.
    • Schedule any procedures, checkups, and tests you may have been putting off if you’re above or near the 7.5% adjusted gross income threshold for deducting medical expenses.
  • Annual gift tax exclusion: Consider reducing future estate taxes by providing gifts to family tax-free each year. The current limit is $16,000 per person. That doubles to $32,000 if you are married.
  • Pay tuition for kids and grandkids: Reduce the size of your estate by paying tuition for your kids or grandkids. When payments are made directly to the school, the monies are not taxable and are not included in the maximum gift tax exclusion amount noted above.
  • Contribute to a 529 plan: In 2022, taxpayers can contribute up to $80,000 each ($160,000 total for married individuals) to a 529 education savings plan. Taxpayers who contribute the full amount can then claim the $16,000 gift tax exclusion ($32,000 if married) this year and roll the remaining contribution balance forward until the full amount has been claimed.
  • Flexible Spending Arrangement accounts: If you have any funds in an FSA or healthcare FSA, and your employer has not enacted the $570 carryover rule or 5 month grace period, your deadline for using funds on qualified expenses is December 31, 2022. Anything leftover will be lost.
  • Health FSA contributions: Consider depositing the maximum amount ($3,050) in a healthcare FSA to cover medical expenses in 2023 tax-free.
  • Required Minimum Distributions: Taxpayers who have reached age 72 may be required to make minimum withdrawals from their retirement accounts. Put in the request for your 2022 required minimum distribution (RMD) now if you have not already. Many investment firms have a backlog from every client waiting until the end of the year to make the distribution.
  • Qualified Charitable Distribution: Consider using your required minimum distribution to gift funds to a nonprofit. This will keep your taxable income low and satisfy the withdrawal requirement on retirement accounts. If you are 70 ½ or older, you can transfer up to $100,000 to charity each year from traditional IRAs.
  • Boost tax withholding: To avoid penalties, taxpayers must make estimated tax payments throughout the year equal to or greater than 90% of their projected 2023 tax liability or 100% of their 2022 tax liability (110% if making more than $150,000). Have your payroll department increase your tax withholdings through the end of the year if you’re concerned you haven’t made enough payments to satisfy this requirement.
  • Electric vehicle credits: As of August 16, 2022, electric vehicles must be assembled in North America to qualify for the modified clean vehicle tax credit. Beginning in 2023, more stipulations will be put in place. Consider purchasing a plug-in electric vehicle in 2022 instead of waiting until the tax credit is more difficult to claim.
  • Review stock portfolio: Consider selling stocks and mutual funds that you do not project to rebound to use the capital losses to offset any realized capital gains. Losses can be deducted from the full amount of capital gains plus $3,000 in other income sources. Excess losses can be carried over to future years, as needed.
  • Property taxes for self-employed: Self-employed individuals can take advantage of a full deduction for property and sales taxes. So, if you are self-employed, you can write off those taxes.
  • Additional considerations for individuals:
    • Certain retirement savings accounts provide tax beneficial methods of savings for the future. Review what options are available to you, including potential donation matches from employers, when considering your tax and savings strategy for 2023.
    • Look over insurance policies and accounts to ensure no beneficiary changes need to be made this year.
    • Discuss whether converting funds from a Traditional IRA to Roth IRA account would be beneficial for you.
    • Review your tax withholding and make any necessary changes for the upcoming year based on current and future expected income.

Additional Considerations for Taxpayers

• • Remote work arrangements: Individuals with remote work arrangements may find changes to their tax liabilities. Individuals may have to consider the tax rules in the state they live and the state the business resides in.
  • Virtual and cryptocurrency reporting: Buying, selling or using virtual currencies and non-fungible tokens (NFTs) can have tax implications for taxpayers. Keep this in mind as the tax filing season approaches.
  • Phishing and fraudulent schemes: The IRS has issued several notices reminding taxpayers that first contact is always made by regular mail. Any emails, phone calls, or texts from someone claiming to be with the IRS is most likely an attempt at fraud.
  • IRS automated collection notices: The IRS temporarily paused sending out overdue notices. The agency halted more than a dozen automated notifications for back taxes, levies, and unfiled returns while they work through their backlog of items. Once fully caught up, it will continue to issue notices.

While these are great places to start your year-end tax planning and 2023 tax strategy, every situation is unique. Working with a knowledgeable tax professional can set you up for success. Give our team a call to discuss what last-minute moves you should be making and to create a plan for next year.

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Amber Goering, Partner

Amber, our founding partner, is a Certified Public Accountant with more than 20 years of diverse experience. She specializes in working with individuals as well as growing and mature businesses, assisting with full range services, including tax planning, accounting, compliance and consulting.
 
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