Year End Tax Moves

Here is a list of our favorite tax strategies to consider:

1. Charitable Giving: Contribute cash to an eligible 501(c)(3) charitable organization before year end to qualify for a deduction of up to 60% of AGI (adjusted gross income) or contribute non-cash assets for a 30% deduction against AGI. If you are subject to Required Minimum Distributions (RMDs) from your retirement plan consider a qualified charitable distribution (QCD) directly to a charity from your retirement plan.

2. Roth conversions: Move or “convert” a portion of a pretax IRA or 401k to a Roth. While this does trigger a tax event it is a popular strategy with individuals who are in a lower tax bracket this year than they will be in the future.

3. Tax loss harvesting: Prune your portfolio for losses to offset income and/or capital gains for 2022. $3,000 per year of capital losses can be used as a deduction to income. Losses that are unused will roll into 2023 and beyond.

4. Maxing out HSA/401k: HSAs (Health Saving Accounts) and 401ks are a great way to save in a tax deductible AND deferred account. Remember that to qualify for an HSA you need to be enrolled in a High Deductible Health Plan (HDHP). The maximum contribution for 2022 is $3,650 for a single tax filer, $7,300 for a family with the option if you are age 55 or older to contribute an additional $1,000. 401k plans are tied to participation through your employer. The maximum contribution for 2022 is $20,500 with a $6,500 catch up if you are above the age of 50.

5. Prepay property taxes: For individuals and families who itemize pre-payment of property taxes can be a nice way to reduce your tax liability. Keep in mind that the state and local tax deduction (SALT) is still capped at $10,000 per year. Property taxes are part of the SALT calculation.

6. What about IRAs? IRA contributions need to be made before tax filing deadlines in 2023. Work with your financial planner and tax advisor to understand what type of IRA would benefit you.

7. Important dates: Don’t leave tax planning to the last minute here are the suggested tax deadlines for Charles Schwab (other investment providers are similar):

  • Roth Conversions: December 2nd (best efforts thereafter)
  • Donor advised fund contributions from Schwab account: Dec. 31st. Donor advised fund contributions from a non-Schwab account take 2-6 weeks.
  • Qualified Charitable Contributions: Suggested by November 15th to ensure target charity receives donation by Dec. 31st.

Consult with a tax adviser regarding your specific situation.