Effective tax planning comes down to looking for ways to reduce taxable income, delay a tax bill, increase tax deductions, and take advantage of all available tax credits. It also helps you be aware of your financial situation in order to minimize surprises come April 15th.
The silver lining to the Fed’s interest rate hikes has been earning higher interest on cash stored in savings accounts, Certificates of Deposits, bonds, money market accounts, and more. However, don’t wait until a 1099-INT form arrives in your mailbox in February to realize that you have significantly more taxable interest income compared to previous years. Interest from savings accounts that are not tax-deferred are taxed at your ordinary income tax rate. Avoid a tax season surprise by reviewing your account statements now, speaking with your CPA, and making necessary adjustments or estimated payments to help lessen the sting.
2023 is quickly winding down, but there are some year-end tax planning tips that you may want to consider, depending on your financial situation.
Adjust the timing of income. If your income is high, postpone receipt of more income. For example, if you’re due a bonus, see if your employer will hold off writing the check until January. If you own a cash-basis business, send your December billings at the end of the year.
Speed up deduction payments. Close to the line on itemizing? Accelerate payment of deductible expenses such as state income or property taxes if your tax payments for the year don’t already reach the $10,000 SALT cap. Make an extra mortgage payment for more deductible interest. Give next year’s contribution to your favorite charity before December 31st to “bunch” your charitable deductions into a year in which you can itemize.
Be charitable. You can make cash contributions or charge them on your credit card and take a current deduction. If you donate appreciated property, you will get to deduct the full market value.
Manage your retirement. One of the best ways to reduce taxable income is with tax-beneficial retirement programs. Contribute the maximum to a deductible IRA, 401(k) or Keogh plan.
Bump up withholding or make estimated payments. If you know ahead of time that you will be facing a shortfall, you can strategically make a 2023 tax payment to help avoid IRS penalties and interest.
If you have not yet touched base with your accountant and advisor, consider doing so before the end of the year in case any moves must be made prior to December 31st. Contact an Alloy Silverstein advisor today to get started on your tax planning for the upcoming tax season.
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