Articles & Alerts

As we approach the culmination of another fiscal year, high-net-worth individuals find themselves at a critical juncture for strategic financial decision-making. The year-end isn’t just a time for festive celebrations; it’s also a crucial window for meticulous tax planning. Below, we outline a comprehensive checklist designed for those with substantial financial portfolios, aiming to optimize their tax positions and set the stage for a prosperous 2024.

1. Launching Your Year-End Tax Strategy: Revisiting Your 2022 Return
   To lay the appropriate groundwork for year-end planning, start by revisiting your 2022 tax return. This serves as an excellent springboard to craft a comprehensive year-end tax strategy. When reviewing, it is important to take stock of all income, deduction and credit sources. Be sure to make note of any changes, whether they be new items for 2023 or items that may no longer exist. Lastly, did you receive a refund, did you owe money, and how does your withholding compare to last year? There is still time to adjust your withholding or simply make an estimated tax payment before January 15^th to avoid unnecessary late payment interest and penalties.
2.  Accelerating Income: To Bill or Not to Bill?
   As the year ends, discuss with your accountant whether to accelerate or defer income and deductions for optimal tax planning.
   Questions to consider: How does your adjusted gross income (AGI) impact this decision? What do your projected earnings look like for the following year? Will you be in a higher or lower tax bracket? Managing and evaluating these questions is pivotal to ensuring that you are maximizing your overall tax strategy.
3. Maximizing Itemized Deductions
   With the Tax Cuts and Jobs Act of 2017 having introduced major changes, itemized deductions have taken a less prominent role. The imposition of the State and Local Tax (SALT) deduction cap of $10,000 has left many taxpayers unable to itemize, making the standard deduction, well, more standard. Now, “bunching” deductions comes into play. This strategy has long been leveraged for medical expenses due to the AGI limitation and has recently been adopted for charitable contributions. Suppose you’ve already made significant charitable contributions in 2023 but you have yet to surpass the standard deduction, inclusive of all itemized deductions. Do you plan on making additional contributions in 2024? If so, accelerating those contributions into 2023 is a great way to ensure you are maximizing the full tax benefits of your charitable contributions in the current year.
4. Tax Loss Harvesting
   Tax loss harvesting, a tried-and-true strategy for investors, involves selling underperforming investments to offset capital gains taxes. This method allows investors to decrease their taxable income by realizing losses. However, there are certain things to keep in mind and it is best to consult and work with your financial adviser and accountant when utilizing these strategies. Taxpayers should be mindful that if they plan to repurchase the same or similar assets in the future, they proceed with caution, considering potential wash sale issues. Another strategy worth noting is making charitable contributions of appreciated securities, a strategy which not only saves on current tax but the future tax associated with the sale of such security.
5. Maximizing Retirement Benefits
   Have you maxed out your 401k, and are you unsure about your next steps? Consider IRAs as the logical choice, with both Traditional and Roth options for most individuals. However, your AGI will determine your eligibility for each type, so ensure that you qualify before contributing. The AGI limitation will apply to the Roth IRA, and those below the threshold may contribute while those above it are limited to Traditional IRA contributions. To bypass this limitation, some use a strategy known as the “Backdoor” Roth IRA, contributing first to a Traditional IRA and subsequently rolling it into the Roth IRA. If you haven’t made your IRA contributions for the year, there’s still time to do so.
6. Gifting and your annual exclusion
   Have you used up your annual exclusion for 2023? To make the most of the annual gift tax exclusion, ensure you send your last-minute gifts before the year ends. The annual exclusion allows you to give up to $17,000 in 2023 without incurring gift tax. Sending these gifts before December 31^st maximizes your use of the exclusion and allows you to offer financial support without tax implications, further contributing to your overall financial planning strategy. Keep in mind that educational and medical payments made directly to institutions, doctors and hospitals do not constitute gifts and do not count towards the $17,000 limit.
7. Where do you stand on Student Loan Interest?
   It may be a worthwhile exercise to see where you or your children stand regarding the interest paid year-to-date on student loans. Many borrowers resumed payments late in the year, and it is crucial to note that the IRS permits a deduction of student loan interest to those who qualify of up to $2,500 per year. To make the most of this deduction, consider making extra payments before December 31^st.
8. Clean Vehicle Credit: Buy now or buy later?
   Eyeing an electric car purchase? It may be the right time to take the plunge. The IRS offers a $7,500 clean vehicle credit for eligible cars. This credit extends to used vehicles as well, albeit at a lower rate and with additional conditions. Although these credits can be utilized beyond 2023, acting now ensures you will claim and receive the benefit of the credit when filing your tax return in April of 2024, just a few months away. Waiting until 2024 to make the purchase creates a much longer lag time between purchase and receiving the applicable credit.
9. Prepare, prepare, prepare!
   It is crucial to assess your 2023 tax situation now. Gauge your standing and put into place any remaining tax planning strategies. Additionally, this is the perfect time to put pen to paper and create a plan regarding the collection of tax data when it comes time to file your tax returns. The earlier you provide your tax information to your accountant, the smoother the process will be. For more information or to discuss any matter in further detail, contact your Anchin Relationship Partner, or
   Brian Glavotsky, a Partner in Anchin Private Client.