As the end of another year quickly approaches, let’s reflect on some important tax tips that can help reduce a potential tax liability for some taxpayers. Planning for this ahead of time could make all the difference when it comes to saving big tax dollars. Not to mention, with inflation steadily on the rise, these tips could be beneficial in many financial aspects. Here are some important tax tips to consider. 

Charitable gifts & Donations

Many taxpayers may wonder whether itemizing their deductions would be of benefit to them this tax filing season. Consulting their tax professional sooner rather than later could help improve their income tax situation. Taxpayers are allowed to claim qualified charitable contributions as a deduction on their Schedule A on their Form 1040. Keep in mind that charitable contributions must be made to a qualified organization as instructed by the IRS. Before donating, make sure to ask the organization or visit the IRS.gov website to check an organization’s eligibility; not all charities are eligible for tax-deductible donations and special rules may apply to those that do qualify.

If one is planning to make a non-cash donation (such as a collectible item or piece of art), they must deduct the fair market value (FMV) of the donation at the time they made the contribution. If the taxpayer directly benefits from the donation, such as a meal, they can deduct the difference between their donation and the fair market value of the item or service they received.

A taxpayer can also use their annual gift tax exclusion limit if they plan on gifting money to a family member or friend. A person may gift up to $17,000 this year ($34,000 if married) without paying gift tax and having to file a gift tax return.

Charitable donations can also be made directly from a traditional IRA account. Taxpayers 70 ½ or older can transfer up to $100,000 a year directly from their IRA to a charity. They also qualify as required minimum distributions (RMD’s) but are not taxable and not added to their adjusted gross income. 

Medical Expenses



Taxpayers are allowed to deduct any medical expenses that were incurred for themselves and their spouses and/or dependents throughout the tax year that exceed 7.5% of their adjusted gross income. If a taxpayer is planning to itemize their medical expenses, they must be sure to incur any additional expenses before year-end.

Electric Vehicles Tax Credit

Earlier this year, the rules for the credit available for electric vehicles have changed. If a taxpayer is looking to purchase an electric vehicle, they should understand the new rules to help maximize the credit they are allowed. The credit is generally available to middle-income taxpayers purchasing eligible moderately priced electric vehicles.

To qualify for the credit, final assembly of the vehicle must take place in North America. Individuals can check whether a particular vehicle meets this requirement by entering its vehicle identification number (VIN) into the VIN decoder at https://www.nhtsa.gov/vin-decoder. There is also a list of makes and models that generally should meet the requirement at https://afdc.energy.gov/laws/inflation-reduction-act, but you should double check for any particular vehicle by using the VIN decoder. A list of eligible vehicles is also available at FuelEconomy.gov.

Under the new rules, the amount of the credit is based on two separate requirements, each one based on where the vehicle’s battery is sourced. Taxpayers get a $3,750 credit for meeting the critical minerals requirement (which requires that a minimum percentage of the minerals contained in the battery be sourced in the US or a country with which the US has a free trade agreement in effect). Taxpayers can also get a $3,750 credit for satisfying the battery component requirement (which requires a minimum percentage of the value of the components battery be manufactured or assembled in North America). A vehicle can satisfy either or both requirements for either a $3,750 credit if one requirement is met or $7,500 credit if both requirements are met. Similar rules apply for qualified cell fuel motor vehicles. The ability to take the vehicle credit is limited based on the taxpayers modified adjusted gross income (MAGI). The threshold amount is $300,000 for married filing joint taxpayers, $225,000 for head of household taxpayers and $150,000 for single filers. Vehicles are not eligible for credit if they exceed an MSRP limit of $80,000 for vans, pick up trucks, and sports utility vehicles and $55,000 for other vehicles. 

Energy Efficient Home Improvements Credit

Also created within the Inflation Reduction Act are tax credits that have been made available to taxpayers if they make energy improvements to their home; tax credits are available for a portion of qualifying expenses during the year the improvements were made. Individuals are allowed a personal tax credit equal to the sum of 30% of expenses paid for qualified:

• Solar electric property – property that uses solar power to generate electricity in a home,
• Solar water heating property – property that uses solar power to heat water in a home,
• Fuel cell property – property that turns fuel into electricity by electrochemical means;
• Small wind energy property – property that uses a wind turbine to generate electricity in a home;
• Geothermal heat pump property - property that uses the ground or ground water as a thermal energy source to heat or cool a home; and
• Battery storage technology (only post 2022) - must have a capacity of at least 3 kilowatt hours

The property eligible for this credit is normally on the expensive side. For example, a solar electric system for a home may cost around $20,000. If qualified, the credit would be 30% of $20,000, or $6,000. In addition to the federal tax credit, many state and local governments and public utilities also offer incentives, such as rebates and tax credits for investment in renewable energy property. In deciding whether to make the purchase, taxpayers should consider the available incentives and their cost savings in the operating system.

To qualify for the credit, the equipment must be installed in a home that is located in the U.S. and that is used as a personal residence. For fuel cell property, the home must be the main home residence. For the other types of property that the taxpayer owns, it can be any residence in the U.S., not just the main one. Even though the credit is available for certain water heating equipment, it can’t be claimed for equipment that is used to heat a swimming pool or a hot tub. Also, if otherwise eligible equipment is used more than 20% for business purposes, only the expenses allocable to non-business use qualify for the credit. Each type of equipment must meet energy efficiency requirements. The taxpayer can rely on a manufacturer’s certification that a component meets those requirements. They do not have to attach the certificate to the tax return but should keep it within their records at home. The credit covers both the cost of the hardware and the expenses of installing it. Please note that the tax credit can be claimed in the year in which installation was completed. If the equipment is installed in a newly constructed or reconstructed home, then the credit is claimed when the taxpayer moves in. 

Required Minimum Distributions

Taxpayers over the age of 73 are required to take out minimum distributions due to the Secure Act 2.0. If the taxpayer reaches the age of 72 in 2023, their first required minimum distribution will be April 1, 2025, for the 2024 tax year. If a taxpayer reaches 73 in 2023, and was 72 the year prior, these individuals are subject to the age 72 RMD rule that was in effect for 2022.

If the distribution is being withdrawn from an IRA, the amount will be based on the total IRA balance as of December 31, 2022. Taxpayers must refer to the IRS publication 590-B table to determine the amount. The amounts can be taken from any IRA of their choice. 

As for 401k accounts, similar rules apply. Although, individuals who work past the age of 73 and do not own 5% or more of the company can delay taking their RMD from their current employer’s 401k account. An RMD must be taken from each account owned. Also note that penalties for failing to take a required minimum distribution by the due date will result in a hefty penalty of 25% excise tax; possibly less if the RMD is corrected within two years.

Max out 401k & IRA Contributions

Taxpayers have until December 31st to max out their 401k contributions and other similar workplace retirement plans. To contribute to an IRA for 2023, money must be contributed by April 15, 2024. You can contribute up to $22,500 in a 401k ($30,000 if age 50 and above) and up to $6,500 for IRA’s ($1,000 more if 50 or older). 

Increase Federal Tax Withholdings

If the taxpayer is expected to owe for the current tax year, increasing their federal withholdings could help avoid a high tax bill come filing time. It will also help to avoid the underpayment penalty. The taxpayer can avoid the fine if they prepay via estimated tax payments or withholdings of at least 90% of their 2023 tax bill total or 100% of what was owed in 2022. (If their AGI exceeded $150,000 for 2022, then 110% applies)

To do this ahead of time, be sure to submit your updated W-4 to have more taxes withheld from your wages. For individuals who receive social security benefits, fill out the W-4V form to have federal tax withheld from your SSA wages. 

For taxpayers that take required minimum distributions, unless otherwise specified, the plans custodian automatically withhold 10%, but the individual may ask to have more withheld if necessary. 

These are some of the many tax planning tips that taxpayers can adhere to when planning for the next year. If you would like to schedule a meeting to begin your tax planning process, please contact our office at 281-491-8866 for more information. We are happy to help you!