Preparing for the holidays, purchasing gifts, using up vacation time, attending holiday parties—there’s so much to do as the year comes to an end. As you make your to-do list for the remainder of the year, you’ll want to make sure end-of-year tax planning is towards the top of the list.
Why is it so important to make a meeting with your tax advisor a priority before the year’s end? These are just some of the reasons to get a meeting on the calendar, as soon as possible.
Harvesting Tax Losses
If you’ve realized capital gains through the sale of assets, such as a home, business, collectibles or investment securities, etc., end-of-year tax planning is especially important. That’s because you’ll have to harvest your losses in the same year that you realize gains. This year, the last day of trading is December 29, which means you’ll need to have a plan in place to sell securities by that date in order to utilize techniques for tax loss harvesting.
It’s not too late to generate capital losses for the year, but after December 29, those losses will not apply for 2023. Any securities sold for a loss after December 29th will roll into next year.
Use Passive Activity Losses
Sometimes the disposition of a passive activity can be timed to make best use of its freed-up suspended losses. Where reduction of 2023 ordinary income is desired, consider disposing of a passive activity before year end to take the suspended losses against 2023 income. If you plan to implement this strategy, keep in mind that the deadline for the disposition must occur before year end.
Adjusting Withholding
A review of the year’s earnings will also help determine whether you need to make adjustments to your tax withholding or estimated payments. The onus for increasing withholding or making an estimated payment on a bonus of less than $1 million falls squarely on the employee, so if you’re planning to earn a bonus in November or December, it’s worth a conversation with your tax advisor to ensure that you’ll avoid surprises in the new year.
In addition to a bonus, the IRS considers several other types of income to fall into the supplemental wages category, including accumulated sick leave, overtime pay, prizes and awards, certain commissions, back pay, reported tips and a retroactive pay increase.
Contributions to Retirement Accounts
While the deadline to contribute to an Individual Retirement Account (IRA) is April 15, 2024, this is still a crucial time for retirement planning. Employees should consider maximizing contributions to their company’s retirement plan before year-end.
Additional To-Dos
As the year comes to an end, you’ll also want to remember to take your Required Minimum Distributions, complete any Roth IRA conversions and make your final gifts of the year to individuals and charities. The annual gift tax exclusion amount for gifts to individuals in 2023 is $17,000.
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End-of-year tax planning means that you can harness the full range of tax mitigation strategies.
For more information on how our tax advisors can guide you through end-of-year tax planning, contact us here or call us at 561.453.1441.
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LEGAL OR TAX: The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.