Year-End Tax Checklist

This time of year, figuring out last-minute ways to save on taxes is on everyone’s mind. However, in order to keep your end-of-year holiday season still (relatively) stress-free, you can focus on a few key to-do’s to make a big financial impact next filing season. 

#1: Consider Charitable Giving

Charitable giving is, of course, one of the many low-hanging fruits that are ripe for picking when it comes to reducing your taxable income. In general, charitable donations made in 2022 are tax deductible up to 50% of your AGI for taxpayers who itemize. This change comes after they were 100% deductible in 2021 based on COVID-19 tax law changes. However, you can also look to donate appreciated stock to eliminate related capital gains taxes, or donate property or other non-cash assets to help lower your tax bill. Also, you might consider increasing contributions in one year to qualify for itemizing, and take the standard deduction in the next year if that applies to you.

#2: Leverage Tax-Loss Harvesting

This strategy, used to offset large capital gains in your portfolio, entails selling off investments that have had a capital loss. Even if you don’t have enormous capital gains to cope with, selling off investments at a loss can also help to offset taxes against your ordinary income (up to $3,000 over the capital gain/loss offset in 2022). You can also “carry forward” these losses to offset future gains indefinitely. 

Keep in mind that tax-loss harvesting is often a strategy best leveraged with the help of a financial planner or a tax professional. 

#3: Take Your RMD Creatively

Of course, if you’re required to take a distribution from your retirement account, it may feel inevitable that your taxable income will increase. One creative option for taking your RMD and minimizing taxes might be to take a QCD instead of or as part of an RMD. A Qualified Charitable Distribution is exactly what it sounds like - instead of taking your RMD as part of your taxable income for the year, you instead donate some or all of your required distribution to a qualifying charitable organization. For this to work, you must make the QCD transfer directly to the Charity from your IRA, and before you take your RMD. This can both help to support a cause you’re passionate about, and reduce your tax liability during next filing season, assuming you don’t need your RMD as part of your annual cash flow. You may also do an annual Roth conversion (income taxes will be paid in the year converted) to reduce the IRA balance subject to RMDs over time.

#4: Maximize Contributions

If you are still working, it goes without saying that the best way for you to reduce your tax bill is to maximize your contributions! Contributing to your workplace 401(k), and your HSA or FSA can make a notable difference! It’s also a good time of year to check to make sure that you’re continuing to contribute the allowable maximum amount going into next year, as contribution limits change. Per the IRS, new contribution limits to 401(k)s are $22,500 for 2023 ( $30,000 if you’re over 50) .

Have Questions?

We’re here to help! Contact us with any questions you have about year-end tax savings, or how to plan for a lower tax bill throughout the year. 

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.

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