Tax Planning for 2023 (and beyond)

As we approach year end, we'd like to remind everyone of a few common tax planning strategies to minimize taxes in 2023 (or future years). Please reach out if you would like to discuss any of these more.

Loss Harvesting

• If 2023 has been good to you and you anticipate having net capital gains from your trading activity on securities (stocks/bonds/digital assets), work with your financial advisor to sell ("harvest") poor performing investments before year end so that those losses can help offset the taxable gains you have. Two watch-outs
• Be aware of wash sale rules which prevent you from repurchasing substantially similiar securities within 30 days;
• Keep in mind that if your losses exceed your gains, you are limited to a maximum $3,000 net capital loss deduction on your tax return (and any excess loss carries forward to future years)

Roth Conversions

• If you have made traditional IRA contributions, you will evenutally pay tax on these amounts and any earnings on them when you take withdrawals. If you are currently in a tax bracket that is lower than what you anticpate being in down the road, it is wise to convert some funds from a tradtional IRA to a Roth IRA. Although this will become a taxable withdrawal this year, you are taking advantage of the lower tax rates now as well as allowing the investment to grow tax free as earnings on a Roth are NOT taxable (whereas earnings on a traditional IRA are taxable).

Charitable Giving

• If you are charitably minded, keep in mind that IF you itemize, charitable contributions (cash and non-cash) can help you save taxes. The tax savings will depend on the marginal tax rate you are in as well as how far over the standard deduction you are without charitable contributions. If you don't itemize, you may still get a marginal benefit on CO returns if you give more than $500. We are not suggesting you only donate if it has a tax benefit to you but the tax benefit is certainly another advantage as you consider if and how much to donate to causes important to you.

TCJA Sunset

• We will cover this topic in more depth in a future newsletter but just a heads up on the Tax Cut and Jobs Act (TCJA) that was passed in 2017. Although there is no guarantee what Congress will agree to these days, right now the major provisioins of TCJA will expire at the end of 2025. As a general rule, most of the TCJA provisions resulted in lower taxes to individuals. Here are a few examples
• Income tax brackets - individuall income tax rates will revert back to 2017 levels which in most cases were higher than they are under TCJA (the current 12% tax bracket becomes 15%, 22% becomes 25%, 24% become 28%, 32% become 33% and 37% become 39.6%) ;
• The QBI deduction (which allows business owners to reduce taxable business income by 20%) goes away;
• Pre TCJA, the standard deduction was $6,500 for single filers and $13,000 if married. These amounts are inflation adjusted each year but essentailly doubled with TCJA. For 2023, the standard deduction is $13,850 for single filers and $27,700 for married filers.
• Bottom line, although the most common tax strategy is to always defer income and accelerate deductions, given the impacts of the potental TCJA sunset, there is an argument to flip that approach in tax years 2023-2025 in order to minimize the adverse effect of higher tax taxes after 2025.

The link below contains some key facts about 2023 federal income tax rates that we think you will find helpful. Our thanks to our payroll partner (ADP) for sharing this.