YEAR-END PLANNING: STRATEGIES AND CONSIDERATIONS By DARREN THOMAS, CPA, J.D., EA
TRAPHAGEN CPAs & WEALTH ADVISORS
While tax planning ideally should be an all-year undertaking, the last calendar quarter of the year is a great time to take advantage of some rapid-fire tax savings moves and to finalize an overall plan for saving on taxes before the year ends.
In developing a year-end tax plan, aside from tried-and-true tax planning strategies used every year, one must also consider recently passed legislation. The SECURE 2.0 Act brought many updates to the U.S. retirement system. Also, the Inflation Reduction Act boosted a number of energy tax credits for 2023. The following are some 2023 tax planning strategies to consider: BUNCH ITEMIZED DEDUCTIONS If 2023 is looking like it could be a highincome year due to a promotion or large increase in income, the taxpayer should consider accelerating his or her deductions this year. This can include accelerating medical deductions, interest payments or charitable contributions or maximize pre-tax retirement contributions. This will allow the individual to reduce their tax liability considerably more than if they took the standard deduction. HARVEST CAPITAL LOSSES Prior to year-end may be a good time for an individual to consider selling their worst-performing stock positions. This will allow them to offset any capital gains they generated for the year and, as well, take advantage of offsetting their ordinary income up to $3,000 ($1,500 if married filing separate). Any capital losses remaining can be carried forward to future tax years. INVEST IN ENERGY EFFICIENT PROPERTY The Inflation Reduction Act resulted in a number of energy credits being improved for 2023. For example, the energy efficient
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WINTER 2023/24 | NEW JERSEY CPA
home improvement credit replaced the nonbusiness energy property credit for 2023. It provides a credit of 30% of the costs of all eligible home improvements (e.g., roofs, insulation, windows, doors, air conditioners, water heater, heat pumps) made during the year, up to a $1,200 annual limit rather than a $500 lifetime maximum under prior law. Also, the residential clean energy property credit allows a 30% credit for expenditures on certain solar, fuel cell, wind, geothermal and battery storage property, subject to applicable kilowatt restrictions. CONSIDER A ROTH CONVERSION This strategy largely depends on the condition of the overall stock market. If the stock market is underperforming, it may be advantageous to convert a traditional IRA or 401(k) to a Roth IRA. When the stock market is down, plan portfolios are likely at a reduced value. Converting when a plan’s value is lower will allow the individual to convert a greater amount than he or she would normally be able to for the same cost. After conversion and paying the applicable tax costs that make the account an after-tax Roth IRA, it will be able to grow tax-free. Roth accounts also have no required minimum distributions (RMD) and tax-free distributions after the age 59½. Even if the taxpayer does not convert to a Roth IRA in 2023, this is an effective strategy to keep in mind for the future. DELAY REQUIRED MINIMUM DISTRIBUTIONS The SECURE 2.0 Act included increasing the age for RMDs. For those turning 72
