By: Lee Osborne, CPA, CFE, President/CEO of Osborne Rincon CPAs
With 2023 soon coming to a close, there are a few tax strategies that can save you quite a bit of money. Generally, they involve pushing income to the next year and pulling expenses into this year. Here are some tips to consider as you look at potential year-end tax planning decisions:
1) Review Your Portfolio for Losses to Offset Capital Gains
For those who have investments in mutual funds, there will be capital gain distributions coming. If this is the case for you, take a look at your overall portfolio and see if you should take some losses to offset the capital gains that will be coming from your mutual funds. There may not be as much capital gains as in the past, but I am sure there will be some.
2) Consider Charitable Contributions
If you still have some of your Required Minimum Distributions to be taken from your IRA this year, consider making your charitable contributions through a Qualified Charitable Deduction. This is where a portion of the RMD goes directly to the charity. Many are only using the standard deduction of $27,700 if you’re married or $13,850 if you’re single and if this is the case, you may not get the best tax deduction from your charitable contributions.
3) Look at Your 401k Contributions
If you have a 401k with your employer, have you maxed out your contribution? For 2023, that amount is $22,500 plus a catch-up provision if you’re over 50, with an additional $7,500. There are many different types of retirement plans, so take a minute and make sure you max that contribution before the year’s end. Depending on the type of retirement plan you have, some contributions can be made up through April 15th of next year.
4) Be Sure You Are Estimating Your Tax Payments Accurately
Remember, you still have one more estimated tax payment due for this year on January 15, 2024. The IRS and the state of California have both raised their rate on the penalty for underestimated tax payments. The IRS is now at an annual rate of 8%. This is substantially higher than the past. For many, paying the state in December doesn’t help much. With the limit of $10,000 for the tax deduction on your schedule A, it generally doesn’t help to pay that fourth estimated tax payment in December versus the due date in January.
Good News in Regard to Tax Brackets
We have received some good news for 2024. The tax brackets have been raised so you have more income to be taxed at the lower rates. The threshold for the top federal tax brackets has increased by nearly $40,000. Generally, a married couple in 2024 with an income of $300,000 and taking the standard deduction will have a marginal tax rate of 24%. That income could increase almost another $100,000 before you get into the 32% tax bracket. Next year may be a good time to look at converting some of your IRAs to Roth IRAs and utilize the better tax brackets.
Electric Vehicle Tax Credits
Also, in 2024 if you are looking for that tax credit of $7,500 when you purchase a qualifying electric vehicle, be very careful to make sure it does qualify. There are numerous restrictions regarding these electric vehicles and their batteries for that tax credit, so make sure the dealer is upfront on whether it qualifies. There are also income limitations for use of those credits, being income limits of $150,000 for single and $300,000 for married.
Annual Gifts
The annual limit on gifting has increased to $18,000 for 2024. Note the overall gifting rules will be changing in 2025, so if you are considering large gifting in your estate planning, 2024 may be the best year.
If you own your business, there are a number of other items to be considered. If you have any questions, please give us a call.
Lee M. Osborne, CPA, CFE, is the President of Osborne Rincon CPAs. During his 30+ years in public accounting, Lee has done extensive work in many areas, including agriculture, retail sales, the service industry and manufacturing. Osborne Rincon is one of the oldest and most respected full-service accounting firms in the Coachella Valley. To learn more, call 760-777-9805 or go to https://www.osbornerincon.com/.