Year-End Tax Planning: Individuals
With December 31st right around the corner, it is a great time to start the tax planning process which may help lower your tax bill come April.
As of publication, there is no active pending tax legislation that is expected to cause significant changes to our tax laws for 2023. However, it is expected that Congress will pass an omnibus spending bill towards the latter part of 2023 that may address various temporary tax provisions.
Amid an always changing tax landscape, these are the tax moves you may want to consider before the end of the year.
- Retirement Plans: The Contribution limit for employer-sponsored plans in 2023 is $22,500, with a catch-up option of $7,500 for individuals aged 50 and above. The limit will increase to $23,000 in 2024
- Tax Loss Harvesting: Carefully manage gains and losses in investment accounts. To the extent you have capital losses this year or capital loss carryovers from earlier years, selling appreciated securities by year-end may not increase your taxes. Offsetting net short-term capital gains with capital losses is a tax-efficient move because net short-terms gains will be taxed at your higher ordinary income rate of up to 37% plus another 3.8% for the net investment income tax.
- Passive Activities: If possible, consider increasing participation in any passive activities to not be restricted in the amount of losses you can utilize during the year. A taxpayer can satisfy the material participation test by participating in an activity more than 500 hours during the year, participating more than 100 hours if no one else does more, or participating more than 500 hours in all the taxpayer’s significant participation activities.
- Energy Efficient Tax Credits: Consider purchasing a qualified electric vehicle before the end of the year or making energy efficient home improvements. Eligible taxpayers can receive a credit up to $7,500 for the purchase of a new, qualified plug-in EV or fuel cell electric vehicle (FCV). The Home Improvement credit for 2023 is 30% of the cost of certain qualified expenses.
If your total itemized deductions for this year will be close to your standard deduction allowance, consider making enough additional expenditures for itemized deduction items before year-end to exceed the standard deduction.
- Consider accelerating medical purchases for 2023 to increase your deduction for qualified medical expenses. It is important to note that taxpayers can only deduct to the extent that total qualified medical expenses exceed 7.5% of AGI.
- Consider increasing charitable contributions. Through 2025, the charitable contribution limit for a gift of cash to a public charity or donor advised fund remains 60% of one’s adjusted gross income (AGI) and 30% for noncash contributions.
With an always changing tax landscape it is crucial to work with a trusted advisor on tax planning. We will continue to monitor all future developments and keep you informed with the latest tax law changes.
If you have questions about tax planning or other accounting, tax or advisory services, please call 215.675.8364 or email us to speak with a CPA today.
Abraham Shahswar, CPA and Sweta Joshi, CPA contributed to this article.
DISCLAIMER: The WM Update, WM Wednesday Wisdom, WM Daily Update, and other related communications are intended to provide general information, as of the date of this communication, and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.
