As the tax code changes from year to year, there\u2019s nothing \u201croutine\u201d about maximizing your tax deductions and credits. Some of those changes raise or lower deductible amounts. Others introduce new tax benefits or fade old ones out completely. Recently, the IRS even warned that refunds will likely be smaller this year.<\/p>\n\n\n\n
Still, if you\u2019re using a personal finance management tool like Quicken, you\u2019ll be ahead of the game as we enter the final stretch of 2023. Your finances are already organized, and your tax reports are ready to print or email to your accountant with a few simple clicks.<\/p>\n\n\n\n
That\u2019s an important step in taking control of your tax deductions and credits and getting ready for tax season. However, if you want to maximize your refund for 2023 (or at least minimize your obligation), here\u2019s a checklist of last-minute deductions and tax-planning items to consider before the end of the year.<\/p>\n\n\n\n
If you have only one retirement plan through one employer, then the 2023 tax rules and limits<\/a> for your 401(k), 403(b), or SARSEP IRA are fairly straightforward:<\/p>\n\n\n\n Note, by the way, that the rules for a SIMPLE 401(k)<\/a> are similar but lower.<\/p>\n\n\n\n So, what do the rules mean?<\/p>\n\n\n\n The maximum elective deferral<\/strong> is the maximum amount you can contribute from your salary to these specific kinds of retirement plans in 2023.<\/p>\n\n\n\n The catch-up contributions<\/strong> allow people who are at least 50 years old by the end of 2023 to contribute that much extra for the year.<\/p>\n\n\n\n The overall contribution limit<\/strong> is the total that a single employer (or \u201crelated employers\u201d) can add to your accounts in 2023, including both your contributions and theirs. It\u2019s a bit more complex than that, but that\u2019s the gist of it.<\/p>\n\n\n\n Again, if you only have one employer and one plan, these rules are straightforward enough. It\u2019s when you have more than one plan, and\/or more than one employer, that things get more complicated.<\/p>\n\n\n\n Yes, if you are married and make under $73,000 or single and make under $36,500, your contribution gets you a retirement savings contribution credit of up to 50% of the amount contributed. <\/p>\n\n\n\n Some plans do. The rules listed above are IRS limits, not guarantees. You\u2019ll have to talk to your own plan representative to figure out what you can or can\u2019t do in your specific plan.<\/p>\n\n\n\n However, if your current plan is more limited than the IRS max, you can start your own individual IRA or ROTH IRA to make up the difference. A professional financial advisor can walk you through your options.<\/p>\n\n\n\n As a general rule, your maximum elective deferral<\/strong> applies as a total across all your plans. Once you\u2019ve contributed your max for the year, that\u2019s it. You can\u2019t start over in a different plan and contribute again. So make sure you\u2019re \u201cspending\u201d those contributions wisely.<\/p>\n\n\n\n For example, if you have a 401(k) through your employer and also a personal IRA, and if your employer matches your contributions up to a certain amount, take full advantage of that first. Make sure you get every matching dollar you can get from your employer before contributing to your own account.<\/p>\n\n\n\n Your catch-up contributions<\/strong> work basically the same way, but the IRS examples<\/a> showcase an interesting possibility. If you have two different plans, and neither one of those plans allows catch-up contributions, you can still reach your catch-up max by using both.<\/p>\n\n\n\n For example, let\u2019s say plan A and plan B each let you contribute up to your maximum elective deferral amount, but they don\u2019t allow any extra for your catch-up contributions. No problem. Contribute your maximum elective deferral amount to whichever one has a better matching plan. Then, contribute your catch-up contribution amount to the other one.<\/p>\n\n\n\n In other words, don\u2019t get too hung up on the names. It\u2019s the total amount you can contribute that matters, and you can split that total amount among different plans. Just be sure to compare your various plan benefits before deciding how to allocate your contributions.<\/p>\n\n\n\n If you have more than one employer, especially if one of those employers is your own business, then the overall contribution limits<\/strong> come into play. In fact, the IRS examples highlight the possibility of using your own company to take advantage of those much higher limits.<\/p>\n\n\n\n Of course, having your own business doesn\u2019t change the maximum elective deferral<\/strong> rule. That maximum still applies across all your plans, even your plan under your own company. Once you\u2019ve contributed your own personal max from your salary, you\u2019re done.<\/p>\n\n\n\n However, overall contribution limits are much higher and apply to individual employers, not to individual people.<\/p>\n\n\n\n Here\u2019s why that matters. Imagine business-savvy Jane. She\u2019s 48. Her maximum elective deferral is $22,500 for 2023. She has a 401(k) through her employer, and she has already contributed her max for the year through that plan. She\u2019s too young for catch-up contributions, so she\u2019s done.<\/p>\n\n\n\n Or is she?<\/p>\n\n\n\n Let\u2019s say Jane also owns a company to manage her rental property investments. Even if she starts a retirement plan through the company, she can\u2019t contribute any more deferred salary as an individual taxpayer. That maximum elective deferral<\/strong> applies to Jane personally.<\/p>\n\n\n\n However, under the IRS rules, Jane\u2019s company<\/em> hasn\u2019t contributed anything yet toward the company\u2019s overall contribution limit<\/strong>.<\/p>\n\n\n\n For 2023, Jane\u2019s company can contribute the full $66,000 to a retirement plan for Jane. It doesn\u2019t even have to subtract the $22,500 she contributed through her employer\u2019s 401(k), because that was an entirely different company.<\/p>\n\n\n\n Again, maximum elective deferrals apply to individual people, but overall contribution limits apply to individual (and related) companies.<\/p>\n\n\n\n The bottom line:<\/strong> if you have your own company, make sure you\u2019re taking advantage of it. Talk to a financial advisor who specializes in complex wealth management\u2014one who\u2019s familiar with all the tax deductions and credits available through personal business entities.<\/p>\n\n\n\n Ever since the Tax Cuts and Jobs Act of 2017, which increased the standard deductions dramatically for both single and married tax filers, the vast majority of Americans have been claiming the standard deduction every year.<\/p>\n\n\n\n That doesn\u2019t mean it\u2019s always the best thing to do. It just means most people do it. After all, claiming the standard deduction is easier than figuring out your itemized deductions\u2014unless you\u2019ve been categorizing your expenses all year and can generate a Schedule A report of itemized deductions with a few clicks.<\/p>\n\n\n\n Once you have your itemized total, compare that total against your 2023 standard deduction to see at a glance which is best:<\/p>\n\n\n\n If you\u2019re at least 65 years old or blind, the 2023 standard deductions are a bit higher:<\/p>\n\n\n\n If you\u2019re at least 65 years old and<\/em><\/strong> blind, the standard deductions are higher still:<\/p>\n\n\n\n The term \u201cpoints\u201d is used to describe certain charges paid to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points. Points are prepaid interest and may be deductible as home mortgage interest if you itemize deductions on Schedule A (Form 1040), Itemized Deductions. If you can deduct all of the interest on your mortgage, you may be able to deduct all of the points paid on the mortgage<\/a>. <\/p>\n\n\n\n If you\u2019re near the break-point, consider an alternate-year approach to any itemized deductions you can control. For example, you could double your charitable donations one year, then skip them the following year. In the years when you make those donations, choose to itemize. In the alternate years, choose the standard deduction.<\/p>\n\n\n\n If you are<\/em> claiming itemized deductions for 2023, get those charitable donations in before the end of the year, but there are a few tax code limitations to be aware of.<\/p>\n\n\n\n Cash donations to qualifying charitable organizations made in 2023 are 100% deductible in most cases. However, if the amount you contribute is more than 60% of your total income, then certain limitations apply.<\/p>\n\n\n\n One strategy to consider is the donation of appreciated stocks or real estate. When you donate appreciated property, you avoid paying capital gains tax and get to deduct the full fair value of the property donated. This is a win-win.<\/p>\n\n\n\n Another strategy to consider is qualified charitable distribution (QCD) from your retirement IRA. When done properly, while you will not receive a tax deduction for the contribution, you will not need to pay tax, even though IRA distributions are normally taxable.<\/p>\n\n\n\n Finally, remember to get records and receipts for any donation you intend to claim. If you\u2019re using Quicken, attach each record and receipt digitally to its underlying donation transaction so you won\u2019t have to dig around for it when you need it.<\/p>\n\n\n\n In the same way that you can accelerate charitable donations into 2023 by making them in December or delay them into 2024 by making them in January, you can pay upcoming property taxes or state income taxes early or late to flip between years too.<\/p>\n\n\n\n Here, though, the rules are further complicated by AMT and SALT.<\/p>\n\n\n\n The Alternative Minimum Tax (AMT) limits the tax breaks that people with \u201chigh economic income<\/a>\u201d can claim by setting a minimum bar for their tax liability.<\/p>\n\n\n\n Still, it\u2019s not a set number; it\u2019s a calculated amount. Some deductions are allowed under the AMT calculation, but state, local, property, and sales taxes are not.<\/p>\n\n\n\n As a result, there\u2019s no point in accelerating these expenses into 2023 if you\u2019ll be paying the alternative minimum tax liability. You would just lose the benefits. In that case, you\u2019re better off delaying those tax breaks until 2024.<\/p>\n\n\n\n The Tax Cut and Jobs Act of 2017 imposed a $10,000 cap on the federal income tax deduction for state and local tax payments (ergo, SALT). This limitation creates another potential reason why you wouldn\u2019t want to accelerate those payments into 2023 \u2014 if paying in 2023 would result in breaking the cap, you\u2019d lose the tax benefit.<\/p>\n\n\n\n Still, if you own a pass-through business, some states have created a workaround that lets you pay some of that tax through the pass-through entity to lower your state tax liability. It isn\u2019t always the best option, but it\u2019s something you\u2019ll want to ask your tax advisor about if you\u2019re likely to hit the SALT limit.<\/p>\n\n\n\n If your health plan qualifies for a health savings account (HSA)<\/a>, you can deduct up to $3,850 in contributions to your HSA in 2023 for an individual plan, or up to $7,750 for a family plan. If you\u2019re 55 or older, you can add another $1,000 to that limit. It\u2019s not too late to make those contributions for 2023.<\/p>\n\n\n\n For a flexible spending account (FSA)<\/a>, the end-of-year concern revolves around spending, not saving. Most FSA contributions don\u2019t roll over to the following year, so if you don\u2019t spend the money in time, you\u2019ll lose it.<\/p>\n\n\n\n The IRS does, however, allow FSA plans to allow up to $610 to roll over to the next year or to implement a grace period so you can spend the money later\u2014potentially as late as March 15, 2024. So before you scramble to find a last-minute dentist appointment, check the rules of your specific FSA.<\/p>\n\n\n\n The more you make in 2023, the higher your starting point when it comes to calculating your 2023 tax liability. For many taxpayers, there\u2019s not much you can do about when you get paid, beyond maybe asking your employer to delay your bonus check until January.<\/p>\n\n\n\n However, if you\u2019re a business owner or freelancer, you might consider delaying invoices for payments you don\u2019t need right away until the clock turns over to 2024. Still, that\u2019s only going to add to your starting point in 2024, so make that decision carefully, based on all your other tax factors.<\/p>\n\n\n\n If your income was relatively low this year, it might be a good time to sell that appreciated stock you\u2019ve been thinking about trading.<\/p>\n\n\n\n On the other side of that coin, you can also sell off your depreciated holdings before the end of the year to get a tax break from the losses (\u201clost harvesting\u201d). If your losses outweigh your gains, you can claim up to $3,000<\/a> of that excess capital loss to offset your ordinary income and even carry excess losses into the future to offset future income.<\/p>\n\n\n\n Before you pick up a mutual fund or new shares right before year-end, think about what any end-of-year distributions or dividends would do to your 2023 taxes.<\/p>\n\n\n\n It\u2019s always a good idea to consult a financial advisor before making any significant buy or sell decisions, but the months approaching the end of the calendar year are especially important \u2014 both in wrapping up the year for your 2023 taxes and in planning ahead for 2024.<\/p>\n\n\n\n If you have an IRA and you\u2019ve reached the age of 73 (or 72 if you got there before December 31, 2022), you have to start taking minimum distributions by April 1 of the next year.<\/p>\n\n\n\n After that first year, the cutoff date for subsequent distributions is December 31, so if you defer your first one using the April 1 grace period, you\u2019ll need to take a second one by December 31 of that same year.<\/p>\n\n\n\n If you reach age 72 in 2022, you must take your first RMD by April 1, 2023, and the second RMD by Dec. 31, 2023. If you reach age 72 in 2023, your first RMD for 2024 (the year you reach 73) is due by April 1, 2025.<\/p>\n\n\n\n The distribution rule was suspended in 2020, but it\u2019s back in effect with hefty penalties for failing to take the required distributions.<\/p>\n\n\n\n The IRS lists<\/a> the following types of accounts for the minimum distribution rule:<\/p>\n\n\n\n Employer sponsored retirement plan account owners can delay taking their RMDs until the year in which they retire, unless they’re a 5% owner of the business sponsoring the plan. These rules do not apply to IRA accounts. <\/p>\n\n\n\n Unfortunately, like so much else about the IRS tax code, the answer is complicated. It changes based on your balance at the end of the previous year, and your minimum distribution is calculated each year using a distribution period that\u2019s based on your age.<\/p>\n\n\n\n You can find the detailed rules on the IRS website<\/a>, but working with professional financial and tax advisors is strongly recommended.<\/p>\n\n\n\n\n
Do you get a credit, too?<\/strong><\/h3>\n\n\n\n
What if your plan has a lower limit than these?<\/strong><\/h3>\n\n\n\n
What if you have more than one plan?<\/strong><\/h3>\n\n\n\n
What if you have more than one employer (including your own business)?<\/strong><\/h3>\n\n\n\n
2. Consider itemized deductions<\/strong><\/h2>\n\n\n\n
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Additional deduction if you\u2019re 65 or over, or blind<\/strong><\/h3>\n\n\n\n
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If you refinanced your house, deduct those points<\/strong><\/h3>\n\n\n\n
If it\u2019s close, consider a staggered approach<\/strong><\/h3>\n\n\n\n
3. Make charitable donations<\/strong><\/h2>\n\n\n\n
4. Accelerate other expenses (but think about AMT & SALT)<\/strong><\/h2>\n\n\n\n
What is AMT and why does it matter?<\/strong><\/h3>\n\n\n\n
What is SALT and why does it matter?<\/strong><\/h3>\n\n\n\n
5. Take advantage of HSA & Flexible Spending Accounts<\/strong><\/h2>\n\n\n\n
6. Defer income to next year<\/strong><\/h2>\n\n\n\n
7. Sell winning or losing stock, depending on your strategy<\/strong><\/h2>\n\n\n\n
8. Hold off on mutual fund or share purchases<\/strong><\/h2>\n\n\n\n
9. Take any minimum required retirement distributions<\/strong><\/h2>\n\n\n\n
What kinds of retirement plans do these rules apply to?<\/strong><\/h3>\n\n\n\n
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How much is the minimum distribution?<\/strong><\/h3>\n\n\n\n
What\u2019s the penalty for failing to take a distribution?<\/strong><\/h3>\n\n\n\n