Year End Tax Tips

With the end of the year fast approaching, it is time to review your year-end items and take advantage of any tax savings that may be available to you.

·       IRA Distributions and Roth Conversions

o   Any distributions from an IRA, or conversions from Traditional to Roth IRAs, must be completed by the end of the year to be claimed in tax year 2023. If you are wanting to fill a lower tax bracket by making these moves, now is the time to be crunching the numbers. These items do increase your income, so they can have unforeseen impacts on the taxable amount of your social security benefits as well as qualification for various tax credits. We offer tax planning services to help you optimize your distributions while steering clear of these pitfalls.

·       Charitable Contributions

o   You must make any charitable contributions no later than December 31 to claim them in the 2023 tax year. If you are taking IRA distributions and are over age 70 1/2, you can work with your financial advisor to make QCDs directly from your IRA to the charity of your choice. QCDs are excluded from income (up to certain limits), so you can take advantage of this exclusion even if you claim the standard deduction. If you are required to take RMDs, QCDs do qualify as your RMD. Minnesota offers a partial deduction on charitable contributions over $500 (aggregate for the year) for taxpayers who claim the standard deduction. Keep in mind that political contributions, personal memorials, and personal donations (such as Go Fund Me campaigns) are not deductible.

·       Estimated Tax Payments

o   Estimated payments for the 4th quarter are due by January 16, 2024. If you are late with the payments, make sure to pay them as soon as possible to keep any penalties as low as well. The later the payment, the larger the penalty and interest.

The following plan contributions can be made up to the filing deadline of April 15, 2024 and be claimed on your 2023 return. This allows you to start your return and get the preliminary results before making a final decision on any contributions.

·       HSA Contributions

o   If you are enrolled in a qualifying High Deductible Health Plan (HDHP), your contribution limits for 2023 (combined employer + employee contributions) are $3,850 for self-only coverage, and $7,750 for family coverage. Taxpayers aged 55 and older can add a catch-up contribution of $1,000 to their limit. HSAs are one of the most tax-advantaged accounts available. Contributions are deductible, and distributions are tax-free as long as they are used for qualified medical expenses. Money held in HSAs can be invested and will also grow tax-free, making HSAs a powerful tool for retirement planning.

·       IRA Contributions

o   The contribution limits for IRAs (traditional and Roth combined) for 2023 are the lesser of $6,500 ($7,500 for taxpayers aged 50 and over) or your taxable compensation for 2023. Income limitations apply to your ability to make tax-deferred traditional IRA contributions, as well as Roth IRA contributions.

Please contact our offices if you would like to set up an appointment for tax planning before the end of the year. We have office hours year round to serve our clients.