Don't Wait until December - 2023 Tax Planning

Why put off until December what you can do today?

As we enter the final months of 2023, it’s time to start considering planning strategies for the year that may help lower your tax bill.

Review the list below to see if there are steps you can take now to reduce your 2023 tax bill.

PERSONAL TAX STRATEGIES

  • Maximize your 401(k) deferral

    Make sure you are on track for your 401(k) contributions tbe maxed out by year end. The 2023 contribution limit is $22,500 with an additional $7,500 catch-up contribution if you are 50 or older.

    Also consider whether contributions to a ROTH 401(k) would be more beneficial. This would cause your current contribution to be after-tax (resulting in higher, not lower) taxes. This strategy generally works well when you are younger and not taxed at the highest tax rates.

  • Health Savings Account
    Make sure you are on track to maximize your HSA contributions by year end. The 2023 maximum contribution is $3,850 for individual plans and $7,750 for family plans. If you are 55 or older, you can contribute an additional $1,000 catch-up contribution.

  • Monitor your Non-Retirement Investment Portfolio

    With the fluctuations in the stock market, monitor your taxable portfolio and harvest tax losses to offset capital gains if it makes sense when considering your overall investment strategy.

  • Use Back Door ROTH

    While you technically have until 4/15/2024 to fund your back door ROTH for 2023, we advise that you complete the process before the end of the year to avoid any timing issues. Remember that to get the most benefit, your IRA should have a zero balance before your 2023 contribution.

  • Plan for Charitable Contributions
    The COVID era, charitable deduction rules have faded away so only taxpayers who itemize will get a benefit from charitable donations. Ensure that you make the donations before the ball drops in Times Square, and that you receive the proper documentation from the charity. If you have extra cash and are near the standard deduction, you may want to consider bunching charitable gifts to get the benefit of itemizing in one year and taking the standard deduction in another and/or donating appreciated stock rather than cash.

  • Minimize paying IRS Interest

    The higher interest rates are beneficial for your savings accounts but they mean the IRS gets to charge higher rates on underpaid estimates. Verify that you have paid your required estimated payments, which are generally 110% of your prior year tax. If you find yourself short, you can make additional payments via payroll withholding or with a fourth quarter estimate due on 1/15/2024.

TAX PLANNING STRATEGIES FOR YOUR PRACTICE

  • Check on the PTE status in your state
    Over 30 states now allow owners of PTEs (pass-through entities) like S-corps to pay state tax at the practice level. This rule is a workaround to avoid the cap on state tax deductibility on the personal return and can significantly reduce your total tax bill. To be deductible, the payment must be made before the end of 2023.

  • Consider adding a Profit Sharing component to your 401k plan

    Have you maximized your 401k deferrals (see above) but are looking for additional practice deductions and sitting on extra cash? Ensure that your 401k plan has a profit sharing option so you can potentially put another $43,500 into your retirement funds and get a tax deduction for it.

  • Pay yourself and any vendors before year-end

    Once the clock strikes midnight on December 31st, all payments (except for a few odd exceptions like profit sharing) are considered 2024 expenses. Make sure that you have paid yourself for any Augusta Rule rental costs and reimbursed yourself for business mileage before year end. You can also pay the dental supply bill due in early January during the last week of December if you are looking for additional deductions.

  • Purchase NEEDED equipment

    This is always the salesman’s favorite way for you to reduce your tax bill as you can use the bonus depreciation rules to deduct the full cost of the equipment in 2023 rather than spreading it across the next five years. If you:

    1. have some equipment that you are going to purchase in the next 12 months

    2. are flush with cash or can get a 12 month 0% financing deal

    3. can get a great deal with year-end pricing,

    …it may be a great time to purchase that equipment and reduce your tax bill at the same time.

    Since each practice and each situation is different, please schedule a consultation with JNG Advisors today to see what tax planning strategies you can implement.

Jeff Gullicksontaxes