Capital InsightsTaxes

Year-End Tax Review: Your Comprehensive Guide

Presented by Nicolette Davicino, CFP®, EA

As an Enrolled Agent who incorporates a tax lens into my work here with Armstrong, Fleming & Moore, I’m excited to present a thorough year-end tax review that will help readers navigate the complexities of the tax landscape. With the year coming to a close, now is the perfect time to ensure your plans are in order and to optimize your financial and tax positions. Leveraging deductions, credits, and tax-efficient strategies can substantially impact your overall tax liability.

For Individuals:

  1. Review Income and Deductions:
    • Examine your income sources, including salary, investments, and rental income. Ensure you’ve maximized deductions such as mortgage interest, student loan interest, and state and local taxes.
    • Key numbers for 2023: The 2023 standard deduction is $13,850 for single filers and those married filing separately; $27,700 for those married filing jointly; and $20,800 for heads of household.
  2. Contribute to Retirement Accounts:
    • Consider contributing to retirement accounts like 401(k)s, IRAs, or HSAs. These contributions can reduce taxable income and increase your long-term savings.
    • Key numbers for 2023: 401(k) limits increased to $22,500 with a catch-up contribution for employees aged 50 and over who participate in 401(k), 403(b), and most 457 plans. The federal government’s Thrift Savings Plan limit increased to $7,500. The limit on annual contributions to an IRA increased to $6,500 and the IRA catch‑up contribution limit for individuals aged 50 and over remains $1,000.
  3. Speaking of Retirement Accounts…Check RMDs:
    • If you’re over 72, ensure you’ve taken your required minimum distributions (RMDs) from retirement accounts to avoid penalties.
    • Key numbers for 2023: Before 2020, RMDs began at age 70½. The SECURE Act of 2019 increased the age to 72 but in 2022, SECURE 2.0 again raised the age to 73, which took effect in 2023.
  4. Harvest Tax Losses:
    • If you have investments with losses, consider selling them to offset gains and potentially reduce your tax liability.
    • Key numbers for 2023: The IRS allows investors to deduct up to $3,000 in capital losses per year against ordinary income. Remaining losses may be carried forward to offset gains in future years.
  5. Charitable Giving:
    • Make year-end charitable contributions to eligible organizations and keep records for deductions. The IRS may provide deductions for qualified donations.
    • Key numbers for 2023: Those choosing not to itemize can still deduct their charitable gifts, with individual filers allowed $300 in donations, and married couples up to $600.
  6. Healthcare Savings:
    • Evaluate your healthcare needs. Consider enrolling in or adjusting contributions to Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs) to manage healthcare expenses efficiently.
    • Key numbers for 2023: The HSA contribution limits for 2023 are $3,850 for self-only coverage and $7,750 for family coverage. Those 55 and older can contribute an additional $1,000. The annual contribution limit in 2023 for FSAs was increased to $3,050.
  7. Education Credits:
    • Review education expenses and check if you qualify for education tax credits like the American Opportunity Credit or the Lifetime Learning Credit.
    • Key numbers for 2023: The American Opportunity Tax Credit has a maximum annual credit of $2,500 per eligible student (income phaseout and limits apply). The Lifetime Learning Credit has a maximum annual credit of $2,000.

A year-end tax review is an essential financial practice that ensures you make the most of tax-saving opportunities while complying with the law. Whether you’re an individual, business owner, or high-net-worth individual, careful planning and consideration of your financial situation can lead to a more secure financial future. Don’t hesitate to consult with your financial advisor and a tax professional to fine-tune your tax strategy and enjoy the benefits of efficient tax management.