2023 Year-End Tax Planning Checklist

2023 Year-End Tax Planning Checklist

As the 2024 tax season approaches, it is time to review our financials from the previous year and explore strategies to optimize tax outcomes. For both businesses and individuals, effective tax planning starts with consulting an accountant to assess your financial situation from the past year.

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 2023 capital gains and losses
  • Any changes to your tax situation in 2023
  • Any plans to gift money or make contributions to educational accounts
  • Estate planning
  • Strategies to maximize your income if you are retired

Year-End Tax Strategies for Individuals

Capital Gains Planning

2023 Long-Term Capital Gains Tax Brackets:

SingleMarried Filing JointlyMarried Filing SeparatelyHead of Household
0%$0 – $44,625$0 – $89,250$0 – $44,625$0 – $59,750
15%$44,626 – $492,300$89,251 – $553,850$44,626 – $276,900$59,751 – $523,050
20%$492,300 +$553,850 +$276,900 +$523,050 +

Long-term capital gains from the sale of assets held for more than one year are subject to a reduced tax rate compared to short-term capital gains. This rate is contingent on the taxpayer’s taxable income. If possible, you may want to consider avoiding selling an investment until you have owned it for more than one year to qualify for the lower long-term capital gains tax rate. Additionally, consider how much you can realize in capital gains within a single year while avoiding the risk of moving into a higher tax bracket.

Accelerating or Deferring Income and Expenses

Postponing income until 2024 and accelerating deductions into 2023 can enable you to claim larger deductions, credits, and other tax breaks for 2023 that are phased out over varying levels of adjusted gross income (AGI). This approach may be beneficial for 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 those expecting to fall into 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 is contingent on a taxpayer’s 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 with a gross income exceeding $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 2023 is $12.92 million, an increase from the previous year. For married couples, the exclusion is more double $25.84 million.

Tax-Advantaged Accounts

Tax-advantaged savings accounts provide a reliable method to reduce your tax liability while also boosting your long-term savings. If you have any tax-advantaged accounts, you might be eligible for a tax deduction on your contributions. Taxpayers may also want to consider the timing when switching accounts and how that might impact 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

img2 2023 year-end tax planning

Qualified Business Income Deduction

Sole proprietorships, partnerships, s-corporations, and certain trusts and estates may qualify for a deduction of as much as 20% of their qualified business income.

Pass-Through Entity Tax

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

State Tax Credits

Each state provides various tax credits and programs that help businesses lower their tax burden. These programs are designed to attract businesses and provide them with an incentive to continue their operations.

Bonus First-Year Depreciation Deduction

Businesses have the option to make tax deductions for both new and used equipment purchased in the current tax year of 2023. This deduction allows for 80% depreciation, regardless of the number of days the asset was utilized during the year. In the following years, this deduction will continue to decrease by 20% until 2027, when it will expire.

Cost Segregation Benefits

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

If you are looking for more opportunities to lower your taxable income or other year-end tax planning tips, check out our other articles or contact us. Our team of CPAs is available to assist you.

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2023-11-01T18:47:49+00:00November 1st, 2023|Business, Individual, Tax, Tax Return|

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