Year-End Tax Tips

As the end of the year is quickly approaching, there may still be time to implement some strategies to reduce your income taxes this year.

Required Minimum Distributions (RMD)

Required minimum distributions (RMDs) are the minimum amounts you must withdraw from your retirement accounts each year. If you are required to take an RMD for 2023, make sure you take it before December 31. Don’t forget the option of making a Qualified Charitable Distribution with your RMD, as discussed in previous articles.

There have been several changes in the past couple years as to when you must begin to take RMDs. You generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 73 (for 2023).

If you are still working, and have a workplace retirement plan (for example, 401(k) or profit-sharing plan), you can delay taking their RMDs for that plan until the year your retire, unless you are a 5% owner of the business sponsoring the plan.

Roth IRAs do not require withdrawals until after the death of the owner. Designated Roth accounts in a 401(k) or 403(b) plan are subject to the RMD rules for 2023.

Beginning in 2023, the SECURE 2.0 Act raised the age that you must begin taking RMDs to age 73. If you reach age 72 in 2023, the required beginning date for your first RMD is April 1, 2025, for 2024.

If you reached age 73 in 2023, you were 72 in 2022 and subject to the age 72 RMD rule in effect for 2022. If you reach age 72 in 2022:

• Your first RMD is due by April 1, 2023, based on your account balance on December 31, 2021, and
• Your second RMD is due by December 31, 2023, based on your account balance on December 31, 2022.

Flexible Spending Accounts

If you participate in a flexible spending account (FSA) or health reimbursement account (HRA), these are both use-it-or-lose-it plans, so be sure to spend the money on qualified expenses before the end of the year. Whatever funds you do not spend by the end of the year, or the grace period, is money you are leaving on the table. Note that health savings accounts (HSA) do not need spent in the current year and the balance carries over to future years.

Itemized Deductions

If you are bunching charitable deductions in 2023, as discussed in earlier articles, make sure to get the donations made before December 31. If 2024 is the year to bunch, then delay those charitable gifts until after the first of the year.

Capital Gains and Losses

If you have a large net capital gain this year, you may want to “harvest a capital loss” before year end, to reduce the amount of capital gains subject to tax. However, don’t let tax savings be the driver to change your overall investment strategy or financial needs. If you do employ tax-loss harvesting, be sure not to buy the same or a similar security within 30 days to avoid the wash sale rule, which will disallow the loss.

529 Plan

Contribute to your state 529 plan for college. While there is no federal tax deduction for 529 contributions, most states, including Ohio, offer a state income tax deduction for contributions made by residents to state-sponsored plans.

Meet With Your Tax Advisor

If your tax advisor has time on their schedule, make an appointment to meet with them now before the busy season starts in January. They can help you to pinpoint strategies specific to your tax situation.

The information contained in this article is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional for your specific situation.

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Profile photo of Penny Wasem, CPA, CFP, PFS, owner of Lifetime Financial Planning Solutions in Lancaster, Ohio.

By Penny Wasem, CPA, CFP, PFS

Penny L. Wasem is the owner of Lifetime Financial Planning Solutions, LLC. A summa cum laude graduate of Ohio University, Penny earned a Bachelor of Business Administration with focus in accounting and mathematics. She serves on the board of The Fairfield Medical Center Foundation, is a member of the Investment Committee of The Fairfield County Foundation and has been active on many non-profit boards in the community. Penny lives in Lancaster with her husband Eric Hubbard and is parent to Clark and Olivia Hubbard.