The tax deadline is April 18, 2023. There are some actions that can be done in the next calendar year, but most actions are to be completed before December 31. Contributions to traditional and Roth IRAs, Health Savings Accounts, and certain retirement plans for self-employed individuals can be made in the next calendar year. The items below are ones to act on this year. Please give us a call if you would like to discuss any of the following actions.
Charitable Giving
There are various ways to give to your favorite charities and non-profit organizations. This could be as simple as writing a check or using a credit card. Another strategy is to consider bunching or front-loading your contributions in a year in which you itemize, then using the standard deduction the following year. For those individuals required to take a minimum distribution each year (over the age of 72), a simple Qualified Charitable Distribution (QCD) is available. Or this could include more complex strategies, such as utilizing a Donor Advised Fund (DAF), or gifting appreciated securities. Regardless of your strategy, Charitable Giving needs to be completed by the end of the year.
For reference, the standard deduction in 2022 is $25,900 for married filing joint filers and $12,950 for single filers. This will increase to $27,700 and $13,850 in 2023, respectively. Those over 65 years old receive $1,400 more this year and $1,500 more in 2023.
Roth Conversions
Roth conversions carry a tax implication in the year in which a conversion takes place; however, there can be benefits to doing so in the long-term, such as tax-free compound growth. While contributions can be made up until the tax deadline for the prior year, Roth conversions can only be counted for the year in which the conversion took place.
Inherited IRAs
For an individual who inherited a non-spousal IRA, there are certain factors that need to be considered. The first is to determine if the original account holder had started taking Required Minimum Distributions (RMDs) from the account. This will affect the frequency in which withdrawals must be made for the inheritor. Those who inherited an IRA in 2020 or later have a new set of rules to follow. With a few exceptions, the new rule is the funds must be withdrawn within 10 years.
Withholdings and Estimated Taxes
Generally, most filers have to pay 90% of their taxes before the end of the year. For those making estimated fourth-quarter payments, the deadline is January 17, 2023. The penalty on tax underpayments has risen to 6% this year and will be 7% next year. Make sure to check your withholdings.
Tax-Loss Harvesting
In a year in which the markets are down, it could be an advantageous time to harvest unrealized losses in taxable accounts. Capital losses can be used to offset current year capital gains, carried forward to offset capital gains in future years, or up to $3,000 of losses can be used to offset ordinary income. While we are actively managing your accounts throughout the year, we are continually looking at ways to save on taxes in our strategies this time of year.
Many of these tax tips have complex layers and require careful planning as well as professional tax advice. We always recommend clients to consult their CPA or tax professional when it comes to tax sensitive issues.
FSA’s current written Disclosure Brochure and Privacy Notice discussing our current advisory services and fees is also available at https://fsainvest.com/disclosures/ or by calling 301-949-7300.
