The year-end is approaching and that means holidays, New Year’s resolutions and tying up loose ends before kicking off 2024. While it’s a busy time of year, it’s also a good time to take action to help lower your tax bill.
We’ve compiled a list of strategic moves based on current tax rules that may help you save tax dollars by implementing some changes before year-end.
- Higher-income earners could be subject to a 3.8% surtax on certain unearned income. The surtax is 3.8% of the lesser of either net investment income or the excess of Modified Adjusted Gross Income(MAGI) over a certain threshold amount — $125,000 for a married individual filing separately; $250,000 for joint filers or surviving spouses; and $200,000 in all other cases. You may consider ways to eliminate or minimize the surtax, depending on your estimated MAGI and Net Interest Income (NII) for the year. Not sure how to estimate these numbers? Get in touch with us.
- The 0.9% additional Medicare tax impact higher-income earners, prompting workers — whose employment wages and self-employment income total more than the amount equal to the Net Investment Income Tax (NIIT) thresholds — to take action. If you’re self-employed, consider your estimated tax liability. If you’re an employee, employers will be required to withhold the additional Medicare tax from your wages in excess of $200,000 regardless of filing status.
- For taxpayers who hold long-term assets that have appreciated in value, consider selling a portion to generate long-term capital gains that can be sheltered by the 0% rate. Depending on your taxable income, long-term capital gain from asset sales that were held for over one year is taxed at 0%, 15% or 20%.
- Medical expenses may be itemized if they exceed 7.5% of your adjusted gross income, as well as state and local taxes up to $10,000, charitable contributions and interest deductions on a restricted amount of qualifying residence debt. Note that payments of those items won’t save taxes if they don’t cumulatively exceed the standard deduction according to your filing status. To work around these restrictions, you may move discretionary medical expenses and charitable contributions into a year where they will have a greater tax benefit.
- If you’re 70½ or older by the end of 2023, have a traditional IRA and are unable to itemize deductions, you may consider making 2023 charitable donations via qualified charitable distributions from your IRA. The contribution amount is not included as part of your gross income, nor is it deductible on Schedule A, Form 1040.
- If you’re facing a penalty for underpayment of estimated tax, you may take an eligible rollover distribution from a qualified retirement plan before the year-end. The income tax withheld will be applied toward taxes owed for 2023. While no part of the distribution will be includible in income for 2023, the withheld tax will be applied pro rata over the full 2024 tax year to reduce previous estimated underpayments.
- Year-end is a good time to consider increasing the amount set aside for next year’s flexible spending account (FSA), especially if you put aside too little for the past year and you’re anticipating similar medical costs going forward.
- For workers who become eligible by December 2023 to make health savings account (HSA) contributions, you may make a full year’s worth of deductible HSA contributions for 2023.
- To save on gift and estate taxes, you may shelter gifts from the annual gift tax exclusion before year-end. Unused exclusions may not be carried over from one year to the next.
- If you live in a federally declared disaster area — and have suffered uninsured or unreimbursed disaster-related losses — you can claim them either on the return for the year the loss occurred or on the prior year’s return to generate a faster refund. You also may want to settle an insurance or damage claim in 2023 in order to maximize this year’s casualty loss deduction.
At Magone & Company, our goal is to get you thinking about potential moves that can minimize your personal tax liability now and in the future. For tax planning guidance or assistance, give us a call today at (973) 301-2300. We look forward to working together to create a plan based on your unique tax situation.
This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your tax situation.