“I have lost my favorite teacup. I can have lost my teacup and be miserable. I can have lost my teacup and be all right. Either way, the teacup is gone.” – Chinese Proverb
Year-end tax planning checklist:
Consider tax-smart strategies for charitable giving.
- If you are over age 70½, you may be able to distribute funds from an IRA tax-free directly to a qualified charity. This is called a Qualified Charitable Distribution. The limit is $100,000 per IRA owner and this counts as your Required Minimum Distribution.
- “Lumping” multiple years of charitable gifts into one year in order to itemize deductions on that year’s tax return. You may be able to use a Donor Advised Fund to help with this.
Business owners may be able to transform net operating losses (NOLs) into tax-free income with a Roth IRA conversion
- Business owners who will record a net operating loss (NOL) this year may be able to use it to their advantage. Unlike net capital losses, where taxpayers are limited to using only $3,000 annually to offset ordinary income, taxpayers can generally apply NOLs against 80% of taxable income. Clients carrying forward large NOLs can use those losses to offset the additional income from a Roth IRA conversion.
- Consult with a qualified tax professional
Consider Roth strategies to hedge the risk of higher taxes in the future
- Fill up lower tax brackets
Determine marginal tax bracket to drive timing of income (or deductions) at year-end
- Fund Health Savings Accounts if you qualify. You could get a tax deduction on contributions, tax-free growth, and tax-free withdrawals.
- Take gains if income is low. Could be zero tax if below certain limits. Under $41,675 for single and $83,350 for joint for 2022.
Tax Loss Harvest
- Sell an investment in a taxable account at a loss and buy a similar investment. You may be able to use that loss to offset gains taken this year.
Review Beneficiary designations
- On IRA accounts
- On insurance policies
- On annuities
Gifting before year-end
- $16,000 per person in 2022 without gift tax.
Gifting in 529 plans
- Grandparents the annual gifting limit for 2022 is $16,000, and there is a special 529-plan exclusion allows five years’ worth of gifts — up to $80,000 or $160,000 for married couples — to be contributed at once, provided that no other gifts are made within the next five-year period.
- You may get a state tax deduction for 529 plan contributions.
- These assets are not currently factored as assets for determining federal financial aid under the FAFSA process
- However, distributions from these accounts may be counted as part of the income test portion of the financial aid calculation
- recent tax law changes allow 529 account owners to withdraw $10,000 for K–12 tuition expenses and $10,000 to repay student loans, and allow distributions for qualified apprenticeship programs.*
- If paying for K-12 private school, consider running money through a 529 plan to save on state taxes!
Business owners– Conduct a retirement plan review to see if you can defer more income pre-tax.
- Start a SIMPLE IRA
- Start a SEP
- Upgrade to 401k
- Cash balance plan
Many changes are likely to take place for 2023.
To see what your next best steps are, feel free to email me at Jeremy@Riverbendwm.com or click here to setup a phone appointment.
On the lighter side, we took Elliott and some friends out to dinner for his 18th birthday on the 20th. He is enjoying his senior year in high school.
Hope all is well with you and your family,
Finger Financial Five – 5 points in 5 minutes or less – is to provide you with a weekly shot of useful financial information. My intention is to share principles, so that you will have more clarity and peace, that help you make better financial decisions.
Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA Riverbend Wealth Management.
This content is developed from sources believed to be providing accurate information and provided by Riverbend Wealth Management. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stratos Wealth Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.