Start planning for your 2023 taxes before the year end 

This blog post was originally published on November 9, 2022 and updated on November 1, 2023.

As we near the end of 2023, consider upcoming tax deadlines and opportunities that could significantly affect your returns. Although there have been few tax law changes this year, many individuals may have experienced life changes that could affect their taxes.

Consider these 10 tax planning and preparation moves before year-end.

1. Talk to your tax, wealth and insurance advisors about any changes in your life.

Your tax obligations and opportunities to reduce your tax burden may be affected by a wide range of changes in your life. Many people don’t realize how seemingly inconsequential or irrelevant changes actually affect their taxes. In addition, many of these changes can lead to changes in your estate planning.

Here are a few life changes to discuss with your advisors:

• Moving to a new home
• Divorce or marriage
• Children who entered your life (by birth, adoption, marriage, etc.), started college, moved out of your home, moved back into your home or married/divorced
• Death of a spouse or dependents
• Inheritance or significant gifts of any type
• Sale or purchase of any major assets, including property, securities and businesses
• Employment changes, such as a new job, significant promotion or becoming self-employed
• Buying or leasing a new electric vehicle (some related tax credits are sunsetting, but others might kick in)
• Having student loan or other debt forgiven, or taking on new debt

Download our personal financial changes checklist to help you prepare for proactive tax and financial planning conversations with your advisors.

2. Don’t forget about disaster claims.

If you were affected by Hurricane Idalia or other recent natural disasters, let your tax professional know about the scope and cost, even if you don’t yet have complete information. If you’ve been affected by a Presidentially Declared Disaster, you may be able to claim the losses not covered by insurance on your tax return. Under the right circumstances, it may make sense to amend your prior year tax return and possibly obtain a refund more quickly.

3. Consider where you’re spending your time.

If you’re spending more time than usual in a different state or country, your taxes may be affected. This includes time spent on vacation, working remotely, on assignment for an employer, living in a second home and more. Higher-tax states may examine the number of days you lived in a lower-tax state to establish a tax domicile and create a possible income tax obligation for you. Time spent outside the U.S. could lead to changes in your tax obligations, both domestically and in those countries.

Spending too much time in certain locations might establish an unwanted tax requirement. Sometimes, the number of days you spend in a particular place between now and the end of the year, as well as the activities you engage in can make a significant difference in your tax situation. Your tax professional can help you understand your options.

4. If you haven’t already done so, finish your 2022 tax filing.

The IRS announced that the e-file system for Form 1040 will shut down at 11:59 p.m. Eastern Time on Saturday, November 18, 2023. If you still need to finish your 2022 filing, do so before then, or you’ll have to file on paper – a recipe for a much slower refund, lost filings and other delays.

If your tax professional is waiting for information or documentation from you, provide it as soon as possible. Even if you think you’ve provided everything that’s needed, check in with your professional to confirm whether your filing is on track and that there is no additional information they need.

5. Consider moves that take advantage of changes in asset values.

Discuss with your tax professional whether you should use capital losses to offset realized gains – a particularly timely question with the stock market’s volatile performance. You might also consider tax loss harvesting: selling marketable securities whose value is down to offset gains in other assets. And, discuss whether you might benefit by rolling capital gains into a Qualified Opportunity Zone Fund, which lets you defer or reduce your tax liability with investments in targeted locations and companies.

Consider making moves that you might have put on hold because of concerns about their tax impact, such as converting traditional IRAs to Roths or selling securities. Roth IRA conversions are taxed at the value when you convert them, so lower portfolio values mean less taxes.

High-income earners can’t contribute to a Roth IRA once they reach a certain threshold (generally up to $153,000 for individual filers and $228,000 for married filing joint filers), but traditional IRAs don’t have a ceiling. This can make conversions a helpful strategy. This “backdoor Roth” strategy is still available, although lawmakers have discussed closing it off in the future.

Finally, discuss with your tax professional asset location strategies to implement before year-end. This may include placing tax-inefficient assets in a tax-deferred account, stocks and other tax-preferential assets in a taxable account, and assets with the highest expected return in a Roth account.

6. Defer compensation or income and/or maximize tax-deferred retirement contributions.

You may have an option to reduce your tax burden by deferring certain types of income until 2024. This can include salary, bonuses, some types of commission, or proceeds from real estate or business sales. Generally, deferring payment can defer the tax obligation.

Another consideration in deferring tax obligations is to maximize retirement plan contributions. The 2023 401(k) tax contribution limit is $22,500 for those under age 50 and $30,000 for those 50 and older. Self-employed individuals can also make employer contributions up to $66,000, or $73,500 for those 50 and over.

In addition to deferring your tax obligation, deferring business income and making deductible retirement plan contributions may help you maximize your qualified business income (QBI) deduction, if you own a qualified business.

7. Evaluate your estate, trust and gifting strategies.

The current lifetime gift and estate exemption for individuals lets you gift $12.92 million to heirs free of federal gift/estate taxes. That lifetime exemption is scheduled to be cut in half starting in 2026, so it might make sense to pass assets to heirs now, while the exemption remains high.

Consider whether your gifts should be to a 529 plan if you have children, grandchildren, a niece, a nephew, or anyone whose education you want to help fund. While there are some contribution limits, withdrawals from these plans can pay for undergraduate and some K-12 education, as well as a host of education-related expenses.

Finally, meet with your estate and trust professionals to review your estate plan and see if it meets your current needs. Updates to consider may include provisions for beneficiaries, appointments of trustees and other agents.

8. Check in on your charitable giving strategy.

If you have appreciated stock in your portfolio, perhaps consider donating some of these shares to a qualified charitable organization. Alternatively, if you don’t always itemize your deductions, it could make sense to “bundle” your giving – making larger gifts every other year, or making a gift twice in one year, then skipping the next year. This strategy may let you itemize deductions in the years when you give to charities.

If you must take required minimum distributions (RMDs) from retirement accounts, explore whether it makes sense to donate these funds as a qualified charitable distribution; this would let you exclude that money from your taxable income.

9. Prepare for IRS delays.

The IRS is still experiencing backlogs in certain areas, so factor in some wait time into the tax filing process. Filing early, using electronic filing, and choosing direct deposit will likely allow for the fastest refund.

Ongoing tax situations merit close monitoring and extra communication with your tax professional. Follow-up on tax refunds expected to cover required estimated payments, as these may not have been processed yet. Also, talk with your Kaufman Rossin tax professional right away if you have received a tax notice. And discuss with your tax advisor if there are ways you can minimize the ramifications of IRS delays and issues.

10. Stay in touch with your tax professional.

Good communication and proactive planning are the best ways to set yourself up for a smooth tax-filing process.

Contact the Kaufman Rossin tax advisory team before the year ends to discuss tax planning and make any adjustments you need to position yourself for a smooth, surprise-free tax season.