As we turn over into the 2023 new year we begin to prepare for tax filing season and review our financials from the previous year. Good tax planning begins with consulting an accountant to analyze your financial situation from the previous year or simply reviewing these areas on your own.

2022 Standard Deductions

Single Filers: $12,950

Married Filing Jointly: $25,900

Head of Household: $19,400

2023 Standard Deductions

Single Filers: $13,850

Married Filing Jointly: $27,700

Head of Household: $20,800

Important topics to discuss and review with your accounting advisor:

• Your capital gains and losses in 2022
• Any changes in your 2022 tax situation
• Any plans to gift money or make contributions to education accounts (i.e. 529 funds)
• Estate planning
• Strategies to maximize your income if you are retired

Year-End Tax Strategies for Individuals

Capital Gains Planning

Long-term capital gain from sales of assets held for more than one year is taxed at a lower rate than short-term capital gains. The rate is dependent upon the taxpayer’s taxable income. If possible, you may want to consider avoiding selling an investment until more than one year to qualify for the lower long-term capital gains tax rate. Also, consider how much you can take in capital gains in one year while avoiding being pushed into a higher tax bracket.

Accelerating or Deferring Income and Expenses

Postponing income until 2023 and accelerating deductions into 2023 can enable you to claim larger deductions, credits, and other tax breaks for 2022 that are phased out over varying levels of adjusted gross income (AGI). This may be beneficial to taxpayers who are in a high tax bracket and may qualify for tax credits if their income was lower. Postponing income may also be desirable for taxpayers who anticipate being in a lower tax bracket the next year due to a change in financial circumstances.

Net Investment Income Tax

The 3.8% net investment income tax applies to taxpayers depending on their modified adjusted gross income and their net investment income. Taxpayers may consider methods to avoid this tax. For example, increasing investment expenses will lower your net income.

Additional Medicare Tax

The additional Medicare tax of 0.9% applies to taxpayers whose gross income exceeds $250,000 for joint filers, $125,000 for married couples filing separately, or $200,000 in other cases.

Estate Tax Planning

The lifetime gift exclusion limit for 2022 is set at $12.06 million and is set to increase to $12.92 million in 2023. The exclusion is doubled to 24.12 million for married couples.

Tax-Advantaged Accounts

Tax-advantaged savings accounts offer a surefire way to lower how much you pay in taxes while increasing your long-term savings. If you hold any tax-advantaged accounts, you may be able to take a tax deduction on your contributions. Taxpayers may also want to consider the timing when switching accounts and how that may affect their adjusted gross income.

Charitable Contributions

Taxpayers can use charitable contributions to reduce their capital gains tax liability by donating long-term appreciated assets.

Year-end Tax Strategies for Businesses

Qualified Business Income Deduction

Businesses operating as sole proprietorships, partnerships, s-corporations, and some trusts and estates may be entitled to a deduction of up to 20% of their qualified business income.

Pass-Through Entity Tax

Pass-through entity tax elections could allow businesses to fully deduct state and local taxes from the entity’s taxable income.

State Tax Credits

Each state offers various tax credits and programs that help businesses reduce their taxes. These programs are intended to attract business and give businesses an incentive to continue business operations.

Bonus First-Year Depreciation Deduction

Businesses are permitted to make tax deductions for equipment bought new or used if the purchase was made during the current tax year of 2022. The write-off accounts for 100% depreciation regardless of how many days the asset was in service during the given year.

Cost Segregation Benefits

Cost Segregation studies allocate building costs to a tangible personal property so that depreciation deductions can be taken sooner rather than later.