2023 End of Year Planning Guide
Markets, tax laws, income, goals and your life are always changing.
Every year presents itself with unique opportunities to capitalize on tax and planning strategies. These are the questions that we ask our clients every year to ensure they finish their year well and are prepared for the coming year. We believe that you and your advisor should be having conversations surrounding these topics at least annually.
If you find yourself in a similar situation as one listed below and need a guide, give us a call or send me a quick email, and we will be more than happy to walk with you through these questions.
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1) Should you give an outright charitable gift of cash for an immediate income tax deduction?
2) Can you “bunch” several years of charitable contributions into the current year to increase your itemized deductions and receive a tax benefit? This strategy is especially beneficial if you are having a higher income year, or if you have only used standard deductions.
3) Have you explored Donor-Advised Funds (DAFs)? They are useful tools for bunching as you can make a contribution now for an immediate income tax deduction and then distribute gifts to charities over time as you see fit.
4) Should you contribute to charities using appreciated stock in place of cash to reduce capital gains in your portfolio while generating an income tax deduction? Donating appreciated stock with long-term gains creates a deduction of the full fair market value with no taxes on the appreciation, avoiding capital gains tax. Be mindful – MLPs are especially difficult to give away.
5) Can you utilize Qualified Charitable Distributions to donate to charity from your IRA – you can donate up to $100,000 under favorable tax provisions. You must be over 70.5.
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Personal
1) Are you leveraging any company matching programs, and are you able to maximize employee contributions?
2) Have you and your advisor reviewed employer-provided stock grants and options for any vesting or expiration dates?
3) If you are on a high deductible plan, are you maximizing your Health Savings Account (HSA) for 2023?
4) Do you have any FSA residual balance? Most funds must be used within the same plan year. Don’t let it go to waste.
5) If you’re selling a business/real estate or realizing significant gains this year, have you implemented a charitable strategy to reduce your tax bill?
6) Can you collaborate with your children? This is a great opportunity to get children excited about charitable giving and to grow together as a family in your financial vision.
7) Have you shopped around for better cash rates? After years of offering essentially zero interest in money markets, savings accounts, and similar platforms, some banks are now offering higher interest rates to savers. If you have significant cash reserves, now may be a good time to compare rates and fees. Double-check fees and make sure your money remains FDIC-insured.
8) Watch out for variable interest rate loans and lighten your debt load. Carrying high-interest debt is a threat to your financial well-being, especially in times of rising rates. Consider paying off credit card balances, or at least avoid adding to them during the holiday season.
Retirement
1) Are you able to deduct annual contributions of up to $6,500 to your Traditional IRA and $6,500 to your spouse’s Traditional IRA?
2) If you are over the age of 50, can you take advantage of catch-up IRA contributions?
3) Can you and should you make a Roth IRA contribution?
4) Are you incurring any penalized distributions from IRAs? Typically, withdrawals before age 59 1/2 would incur a 10% early withdrawal penalty (there are some exceptions).
5) Should you utilize a Roth conversion from your IRA or 401k if you are in a lower-income tax bracket? This could lower future RMDs or create tax-free income for beneficiaries.
6) If you are a business owner or self-employed, are you maximizing the use of a SEP IRA?
Tax
1) Can you and should you defer your year-end bonus, the sale of capital gain property, and receipt of distributions to defer income to the following year and reduce this year's taxes?
2) On the other hand, can you accelerate any income potential if you anticipate higher taxes in future years?
3) Have you managed your taxable income to qualify for the 199A Qualified Business Income (QBI) deduction, if applicable?
4) If you have trusts, have you reviewed distributions to ensure taxes are being minimized between the trust and beneficiary, where possible?
5) In December, should you make your January mortgage payment (i.e., the payment due no later than January 15th of 2024) so that you can deduct the accrued interest for the current year that is paid in the current year)?
6) Have you considered making two property tax payments every other year to get the full SALT deduction when you itemize (Note: these are capped at $10,000 per year inclusive of any sales tax deductions)?
6) Can you maximize the utilization of itemized medical expenses by bunching such expenses in the same year to meet the threshold percentage of your AGI?
7) Are you maximizing contributing to your Health Savings Account(s), if possible, to reduce taxable income and create an account for potentially tax-free growth?
Estate
1) Have you reviewed the use of annual gift exclusions – currently $17,000 per individual recipient from each person?
2) Have you considered directly paying for school and medical expenses for others outside your direct household using unlimited gifting exemptions?
3) Should you fund a 529 Plan for a future student. You can even superfund up to five years (without using your lifetime gift exclusion) by gifting $85,000 (5 years x $17,000) per beneficiary in 2023?
4) Have you considered intra-family loans to leverage low-cost loan structures?
5) Can you sell highly appreciating assets to the next generation to lower future estate taxes?
6) Should you plan ahead if your gift requires setting up a new account. Any gift must be completed before year-end to count for 2023.
7) Have you reviewed your goals for transferring your assets?
8) Are your estate planning documents in place and up to date?
9) Have you reviewed your beneficiary designations on all accounts?
10) Have you evaluated the multitude of wealth transfer strategies with your advisor, CPA, and attorney? Your advisor can serve as an effective quarterback for these conversations.
11) Do you need to communicate with your beneficiaries your goals and vision?
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Personal
1) If you are on a high deductible plan, are you maximizing your Health Savings Account (HSA) for 2023?
2) Do you have any FSA residual balance? Most funds must be used within the same plan year. Don’t let it go to waste.
3) Have you reviewed your Medicare enrollment options? (Make sure the IRS has your current income information, particularly if your income has been reduced!)
4) If you’re selling a business/real estate or realizing significant gains this year, have you implemented a charitable strategy to reduce your tax bill?
5) Can you collaborate with your children? This is a great opportunity to get children excited about charitable giving and to grow together as a family in your financial vision.
6) Have you shopped around for better cash rates? After years of offering essentially zero interest in money markets, savings accounts, and similar platforms, some banks are now offering higher interest rates to savers. If you have significant cash reserves, now may be a good time to compare rates and fees. Double-check fees and make sure your money remains FDIC-insured.
7) Watch out for variable interest rate loans and lighten your debt load. Carrying high-interest debt is a threat to your financial well-being, especially in times of rising rates. Consider paying off credit card balances, or at least avoid adding to them during the holiday season.
Investment
1) If you have had life or employment changes, have you made any necessary adjustments to investment objectives and allocation?
2) Do you have any tax loss harvesting (offsetting gains and losses) opportunities, or can you take losses to reduce AGI and build loss carry-forwards?
3) Should you look to avoid mandatory mutual fund distributions (generally in the middle of December)?
4) Have you considered giving away appreciated assets to avoid capital gains and receive a potential income tax deduction? You can give directly or use a Donor-Advised Fund.
5) Have you explored using ETFs in lieu of mutual funds to reduce expenses and the required annual mutual fund distributions?
6) If your portfolio is heavily made up of employer stock, are you able to diversify to potentially reduce risk concentration?
Retirement
1) If you are over the age of 50, can you take advantage of catch-up IRA contributions?
2) Can you and should you make a Roth IRA contribution?
3) Are you incurring any penalized distributions from IRAs? Typically, withdrawals before age 59 1/2 would incur a 10% early withdrawal penalty (there are some exceptions).
4) Should you utilize a Roth conversion from your IRA or 401k if you are in a lower-income tax bracket? This could lower future RMDs or create tax-free income for beneficiaries.
5) If you are a business owner or self-employed, are you maximizing the use of a SEP IRA?
6) Do you need to access retirement funds early using 72(t) distributions? You can tap into your IRA before age 59½ without the 10% early distribution penalty if you commit to a series of withdrawals according to rules set out in section 72(t) of the tax code. You may need to act before December 31.
7) Do you know if you have enough to retire? Have you established a financial plan with which you are comfortable and confident?
Tax
1) Can you and should you defer your year-end bonus, the sale of capital gain property, and receipt of distributions to defer income to the following year and reduce this year's taxes?
2) On the other hand, can you accelerate any income potential if you anticipate higher taxes in future years?
3) Have you managed your taxable income to qualify for the 199A Qualified Business Income (QBI) deduction, if applicable?
4) If you have trusts, have you review distributions to ensure taxes are being minimized between the trust and beneficiary, where possible?
5) If you are still working (and younger than full retirement age), can you defer Social Security to avoid income taxes and potential benefit reduction?
6) In December, should you make your January mortgage payment (i.e., the payment due no later than January 15th of 2024) so that you can deduct the accrued interest for the current year that is paid in the current year)?
7) Have you considered making two property tax payments every other year to get the full SALT deduction when you itemize (Note: these are capped at $10,000 per year inclusive of any sales tax deductions)?
8) Can you maximize the utilization of itemized medical expenses by bunching such expenses in the same year to meet the threshold percentage of your AGI?
9) Are you maximizing contributing to your Health Savings Account(s), if possible, to reduce taxable income and create an account for potentially tax-free growth?
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Personal
1) Have you reviewed your Medicare enrollment options? (Make sure the IRS has your current income information, particularly if your income has been reduced!)
2) If you’re selling a business/real estate or realizing significant gains this year, have you implemented a charitable strategy to reduce your tax bill.3) Can you collaborate with your children? This is a great opportunity to get children excited about charitable giving and to grow together as a family in your financial vision.
4) Have you shopped around for better cash rates? After years of offering essentially zero interest in money markets, savings accounts, and similar platforms, some banks are now offering higher interest rates to savers. If you have significant cash reserves, now may be a good time to compare rates and fees. Double-check fees and make sure your money remains FDIC-insured.
5) Watch out for variable interest rate loans and lighten your debt load. Carrying high-interest debt is a threat to your financial well-being, especially in times of rising rates. Consider paying off credit card balances, or at least avoid adding to them during the holiday season.
Investment
1) Do you have any tax loss harvesting (offsetting gains and losses) opportunities, or can you take losses to reduce AGI and build loss carry-forwards?
2) Should you look to avoid mandatory mutual fund distributions (generally in the middle of December)?
3) Have you considered giving away appreciated assets to avoid capital gains and receive a potential income tax deduction? You can give directly or use a Donor-Advised Fund.
4) Have you explored using ETFs in lieu of mutual funds to reduce expenses and the required annual mutual fund distributions?
5) If your portfolio is heavily made up of a former employer stock, are you able to diversify to potentially reduce risk concentration?
Retirement
1) Should you utilize a Roth conversion from your IRA or 401k if you are in a lower-income tax bracket? This could lower future RMDs or create tax-free income for beneficiaries.
2) Remember to take your RMDs if you are age 72+. Failing to do this can result in a heavy penalty.
3) Have you established a withdrawal rate for your investment accounts for 2024 and beyond? Are you confident that you’ll make it?
Tax
1) If you have trusts, have you reviewed distributions to ensure taxes are being minimized between the trust and beneficiary, where possible?
2) If you are still working (and younger than full retirement age), can you defer Social Security to avoid income taxes and potential benefit reduction?
3) In December, should you make your January mortgage payment (i.e., the payment due no later than January 15th of 2024) so that you can deduct the accrued interest for the current year that is paid in the current year)?
4) Have you considered making two property tax payments every other year to get the full SALT deduction when you itemize (Note: these are capped at $10,000 per year inclusive of any sales tax deductions)?
5) Can you maximize the utilization of itemized medical expenses by bunching such expenses in the same year to meet the threshold percentage of your AGI?
Estate
1) Have you reviewed the use of annual gift exclusions – currently $17,000 per individual recipient from each person?
2) Have you considered directly paying for school and medical expenses for others outside your direct household using unlimited gifting exemptions?
3) Should you fund a 529 Plan for a future student. You can even superfund up to five years (without using your lifetime gift exclusion) by gifting $85,000 (5 years x $17,000) per beneficiary in 2023?
4) Have you considered intra-family loans to leverage low-cost loan structures?
5) Can you sell highly appreciating assets to the next generation to lower future estate taxes?
6) Should you plan ahead if your gift requires setting up a new account? Any gift must be completed before year-end to count for 2023.
7) Have you reviewed your goals for transferring your assets?
8) Are your estate planning documents in place and up to date?
9) Have you reviewed your beneficiary designations on all accounts?
10) Have you evaluated the multitude of wealth transfer strategies with your advisor, CPA, and attorney? Your advisor can serve as an effective quarterback for these conversations.
11) Do you need to communicate with your beneficiaries your goals and vision?
How else can we help you wrap up 2023 and position you and your loved ones for the year ahead? Whether it’s helping you define your personal goals, manage your investment portfolio, optimize your tax planning, consider your cash reserves, or assess any other components that contribute to your financial well-being, we are ready to assist—today, and throughout the years ahead.
At Kings Path, we are passionate about helping clients navigate the financial complexities the encounter throughout life in order to become more confident in their financial futures and goals. Give us a call or schedule a meeting before year-end to discuss.
