Mercer Island Accountants
Accounting
Mercer Island / WA / US
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As the temperature drops during this season, so can your 2023 tax bill with a bit of proactive planning. Time is ticking, and to assist you in maximizing potential tax savings before the year concludes, this newsletter brings you several year-end tax-cutting ideas.
Max out pre-tax retirement savings: Seize the opportunity to contribute to a 401(k) plan before December 31st to benefit from a 2023 taxable income reduction. If your employer allows it, consider a last-minute lump sum contribution. In 2023, you can contribute up to $22,500 to a 401(k), with an additional $7,500 if you're 50 or older. Extend your options by contributing up to $6,500 into a traditional IRA by April 15, 2024, as long as your income remains within phaseout limits.
Convert to a Roth IRA: Explore the possibility of converting some or all of your traditional IRA, SEP IRA, or SIMPLE IRA into a Roth IRA. Despite paying income tax on the conversion amount, subsequent growth becomes tax-free, and withdrawals are 100% tax-free after five years from the conversion date.
Tax loss harvesting: For stocks outside a tax-deferred retirement plan, sell underperforming stocks by December 31st to offset taxable capital gains. Excess losses beyond gains can offset up to $3,000 against other income, with remaining losses applicable in future years.
Selling appreciated assets: Consider selling appreciated assets in the tax year that provides the most benefit. Evaluate your current year's taxable income versus next year's projection to decide when to sell the asset and minimize taxes. Account for the 3.8% net investment income tax in your estimates.
Review health spending accounts: Maximize your Health Savings Account (HSA) contributions to reduce taxable income. HSAs allow pre-tax spending on qualified health expenses, with the advantage of carrying over unused funds into future years. If you have a Flexible Spending Account (FSA), carry forward a maximum of $610 from 2023 into 2024 if your plan permits. The deadline for HSA contributions, eligible for the 2023 tax year deduction, is April 15, 2024, with a maximum contribution of $3,850 for singles and $7,750 for married couples. If you're 55 or older, add $1,000 to your HSA contribution.
The year may be concluding rapidly, but the window to reduce your 2023 tax liability remains open—act now to make the most of it.
Max out pre-tax retirement savings: Seize the opportunity to contribute to a 401(k) plan before December 31st to benefit from a 2023 taxable income reduction. If your employer allows it, consider a last-minute lump sum contribution. In 2023, you can contribute up to $22,500 to a 401(k), with an additional $7,500 if you're 50 or older. Extend your options by contributing up to $6,500 into a traditional IRA by April 15, 2024, as long as your income remains within phaseout limits.
Convert to a Roth IRA: Explore the possibility of converting some or all of your traditional IRA, SEP IRA, or SIMPLE IRA into a Roth IRA. Despite paying income tax on the conversion amount, subsequent growth becomes tax-free, and withdrawals are 100% tax-free after five years from the conversion date.
Tax loss harvesting: For stocks outside a tax-deferred retirement plan, sell underperforming stocks by December 31st to offset taxable capital gains. Excess losses beyond gains can offset up to $3,000 against other income, with remaining losses applicable in future years.
Selling appreciated assets: Consider selling appreciated assets in the tax year that provides the most benefit. Evaluate your current year's taxable income versus next year's projection to decide when to sell the asset and minimize taxes. Account for the 3.8% net investment income tax in your estimates.
Review health spending accounts: Maximize your Health Savings Account (HSA) contributions to reduce taxable income. HSAs allow pre-tax spending on qualified health expenses, with the advantage of carrying over unused funds into future years. If you have a Flexible Spending Account (FSA), carry forward a maximum of $610 from 2023 into 2024 if your plan permits. The deadline for HSA contributions, eligible for the 2023 tax year deduction, is April 15, 2024, with a maximum contribution of $3,850 for singles and $7,750 for married couples. If you're 55 or older, add $1,000 to your HSA contribution.
The year may be concluding rapidly, but the window to reduce your 2023 tax liability remains open—act now to make the most of it.
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