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You’ve Worked Too Hard

December 15, 2023

There’s still time to reduce your tax bill or boost your refund. Here are ten strategies to discuss with your accountant.

Begin a three-year rollover.

If you could benefit by rolling tax-deferred IRA assets into a tax-free Roth IRA but don’t want to pay the income tax on the entire converted amount, consider breaking it up. A multi-year strategy could spread the pain and avoid moving into a higher tax bracket.

Just be sure to get it done by 2026. That’s when current income tax rates are scheduled to sunset, and without action by Congress, the top tax rate will go back to 39.6% from 37% today.

Defer income to 2024.

There’s a 5.4% inflation adjustment coming to the 2024 income tax bracket thresholds. If you expect to make the same income next year as this year, you could end up in a lower tax bracket in 2024.

The 37% tax rate for single filers will kick in at $609,350 versus $578,125 this year. The 35% tax rate will apply when income hits $243,725 versus $231,251 this year. Hence, if you have year-end income and/or bonuses that can be deferred until next year, you may be able to keep more money in your pocket by doing so.

Accelerate deductions to 2023.

Pull forward deductions to this year because there is an inflation adjustment to the standard deduction for 2024. It’s going from $13,850 to $14,610 for singles and $29,200 from $27,700 for couples filing jointly. If itemizing deductions, try to move as many as possible to this year to take advantage of the lower threshold.

One of the most effective ways to do this is to combine several years of charitable gifts into this year because these tend to be one of the biggest discretionary deductible expenses. Also, pay your January 2024 mortgage bill before year-end to deduct the interest portion in 2023.

Give stocks, not cash.

Regarding charitable contributions, giving appreciated securities instead of cash may save big bucks. Let’s say you bought $5,000 in Apple stock that’s now worth $20,000. That stock may be worth only $17,000 after long-term capital gains taxes. But if you contribute the stock to charity, you get a $20,000 deduction, even though it’s only worth $17,000 to you.

Contribute to tax-advantaged accounts.

Pre-tax IRA contribution limits are $6,500 per year or $7,500 for people 50 or older. You can also save up to $3,850, or $7,750 for family plans, using a Health Savings Account (HSA). If you're 55 or older, you can put in an extra $1,000.

Employers often offer HSAs, or you can open one at most large banks and financial institutions. The best part is these accounts offer a “triple threat” for tax breaks. You can claim the upfront deduction, the account grows tax-free, and withdrawals for qualified medical expenses are tax-free.

If you’re short on cash today, both can wait until the federal tax deadline in April.

Review medical bills.

The IRS allows qualified medical expenses over 7.5% of your adjusted gross income to be deducted. For example, if your adjusted gross income is $40,000, anything beyond the first $3,000 of your medical bills (7.5% of $40,000) could be deductible. If you paid $10,000 in medical bills, $7,000 could be deductible.

Claim “work from home” deductions.

If you work from home or have a side hustle, the home office deduction could be a game changer. To qualify, the space must be used regularly for business purposes. For example, if your house is 2,000 square feet, and a dedicated space for work is 500 square feet, 25% of rent and utility fees (electric, water, internet, etc.) are deductible.

Use it or lose it.

If you are over 70½, consider a direct contribution of up to $100,000 from your IRA to a charity. The amount you give is excluded from your income. If you are 73 or older and subject to required minimum distributions, your gift can count.

Tax-free annual gifting is another option, and it’s available to everyone, irrespective of age. Each taxpayer can gift up to $17,000 to another person this year with no tax consequences. For example, a couple with three kids can gift $102,000 annually. These strategies can add up over time, so if they’re right for you, the sooner you consider them, the better.

Write off sales taxes.

You can write off either your state and local income tax or sales tax when itemizing deductions. People living in states with no income tax, like Florida and Texas, benefit the most from this deduction.

However, you may be better off deducting sales taxes over income taxes if you made large purchases during the year. You can use the actual sales taxes paid or the IRS optional sales tax tables. The IRS limits the maximum deduction to $10,000.

Pay your kids’ or grandkids’ tuition.

The simplest way is to pay tuition directly to the school. The payment is nontaxable to the student, it doesn’t count against the $17,000 gift tax exclusion, and it reduces your estate.

Or contribute to a 529 college savings account. Up to $85,000 can be sheltered from gift tax per beneficiary this year or $170,000 if a spouse also participates. For example, putting in the maximum would be treated as gifting $17,000 (or $34,000 with a spouse) to that beneficiary in 2023 and each of the next four years.









This material has been prepared for informational purposes only and should not be construed as a solicitation to effect, or attempt to effect, either transactions in securities or the rendering of personalized investment advice. This material is not intended to provide, and should not be relied on for tax, legal, investment, accounting, or other financial advice. You should consult your own tax, legal, financial, and accounting advisors before engaging in any transaction. Asset allocation and diversification do not guarantee a profit or protect against a loss. All references to potential future developments or outcomes are strictly the views and opinions of Richard W. Paul & Associates and in no way promise, guarantee, or seek to predict with any certainty what may or may not occur in various economies and investment markets. Past performance is not necessarily indicative of future performance.