You have three months left in 2023. There’s still time to save yourself some tax. Here are ten ideas:
1. Do you own or run a company that is a cash basis taxpayer? Consider paying all outstanding invoices by December 31, so you can take the deductions this year. Reach out and get any necessary W9s so you will be ready to file 1099s.
2. Contribute to your retirement account. Subject to certain phase-outs, the annual limit for traditional and Roth IRAs is $6,500 (combined) plus $1,000 more if you are over 50. If you have an SEP account, you can contribute up to $66,000 for 2023. In each case, such contributions can actually be made any time prior to April 15, 2024.
3. Make a charitable contribution. As long as you get the check in the mail by December 31, it counts toward this tax year. Or consider rummaging through your garage and finding things that someone else could use and dropping them off at the Goodwill. Remember that you can only deduct charitable contributions if you itemize, so this will only help people who will have deductions in excess of the standard deduction ($13,850 single; $27,700 married). You must obtain and keep a statement for any contributions of $250 or more.
4. If you are an executive at a corporation that will be selling in 2024, consider taking a bonus in 2023 to increase your “base amount” for tax code Section 280G (golden parachute payment) purposes. For the rest of us, the exact opposite is usually the goal – i.e., to defer income into 2024. For example, run invoices in January instead of December if you don’t want a lot of year end payments.
5. Want to gift something to somebody? You can give any person up to $17,000 this year ($34,000 if you split the gift with your spouse) without it causing you any gift tax or reducing your unified credit.
6. Have any amounts left in a use-it-or-lose-it flexible spending account? Make sure to use them or they will disappear. Need a new pair of glasses perhaps? Or prescription ski goggles?
7. If you have a high deductible health care plan that is HSA eligible, make sure you have maxed out your contributions if possible ($3,850 for individuals and $7,700 for family coverage). If you’re 55 or older, you can add up to $1,000 more as a catch-up contribution.
8. Have kids? Consider putting some money away in a 529 plan which can be used for K-12 or college tuition and other qualified expenses. Contributions to a 529 plan are made from after-tax dollars, but earnings accumulate on a tax-deferred basis and qualified distributions are entirely tax-free. It’s like a Roth 401(k). Better yet, some states give you a state tax incentive if you invest in a plan managed by the state, so you can get reduced tax on the way in and no tax on the way out.
9. While it may be a little late for this move – you could always actually move. Moving from a high tax state to a low or no-income tax state can reduce your taxes in 2024.
10. If you have investments that you are holding at a loss, consider selling them to harvest the loss. You can use the loss to offset other 2023 capital gains and up to $3,000 of ordinary income in 2023 (with any excess carrying forward indefinitely until used).
Mike Baker frequently advises with respect to tax planning. He possesses a breadth and depth of experience in tax and employee benefits & compensation law that spans multiple decades. For additional information, please contact mike@mbakertaxlaw.com.