For most individual calendar year taxpayers this is a relatively quiet time of year. The majority fulfilled their tax filing obligations before or at the customary April deadline paying any balance owed or receiving their refunds. Some filed for an automatic 6 month extension using IRS Form 4868 to give them more time to pull their returns together ahead of October 16, 2023.
However, before shifting attention to the Holiday Season, there are still things taxpayers may want to think about doing before December 31, 2023 that will benefit them when time comes to file their 2023 tax returns in 2024. If you have questions about whether you can benefit from any of the strategies mentioned below, consult with a qualified tax advisor.
Offset investment gains with investment losses. If you hold stocks or funds in investment accounts, some of which have lost money, you may want to sell those underperforming stocks or funds this year to lock in the losses. Then use the loses on to offset gains on other better performing investments. If you have more losses than gains, you can deduct them up to an additional $3000 on your return. An amount beyond that can be carried forward to the next year’s return.
Aggregate itemizable deductions. Since the enactment Tax Cuts and Jobs Act of 2017, fewer people have itemized deductions on their tax returns. The Act suspended the personal exemption and increased the standard deduction. As a result, more people no longer had enough expenses to benefit from itemization and opted to take the new, larger standard deduction on their returns. But if your expenses come close to reaching or exceeding the standard deduction, you may be able to get a tax benefit by bundling some of your itemized expenses that usually fall in different years into the same year. An example would be an annual property tax bill that you could, for example, pay in January of 2023 and then pay the next bill before the end of December 2023. Of course this may make it impossible for you to itemize on your next tax return, but you will still get the benefit of the standard deduction even if your itemizable expenses run well below the standard deduction amount. But note, many provisions of the TCJA were made temporary by Congress and unless Congress acts to retain them, they will expire in 2025. When that time comes, absent governmental action, the old standard deduction and personal exemption system will come back into effect
Make a charitable contributions. Charitable contributions can help you lower your tax bill. They can be taken as itemized deductions, and if your itemized deductions exceed the standard deduction, that lowers your taxable income and consequently your tax bill. Be sure, however, to confirm that the recipient of your donations is a qualified charitable entity. Common qualifiers include churches, educational institutions, veterans organizations, and governmental entities. If in doubt, consult IRS ________. Be aware that some types of giving, such as a personal gift of money to a friend or relative in financial distress, do not qualify for the deduction.
Open an IRA account. If you are eligible to open an IRA, you can put money up to designated limits into an IRA account and avoid having the amount contributed count as income on your current year’s return. Technically this move does not have to be made by the end of the year. IRAs can be opened as late as the April filing date of a tax return. For example, contributions to an IRA opened on April 15, 2024 can be applied to the 2023 tax return. The rules about whether a given taxpayer is eligible to contribute to an IRA, if so how much, and whether the contribution will be deductible can be complex. Consulting a tax advisor, or knowledgeable personnel at the entity where you want to place your account, can help you make the best decision. If you are comfortable in doing so, conduct own diligent research through IRS and other sources.
This is not at all a comprehensive list of beneficial end of year tax moves. I chose the ones featured here because they are not exotic, unusual, or only applicable to some rare tiny segment of taxpayers. To the contrary, a wide swath of ordinary U.S. taxpayers are well positioned to take advantage of one or more of these moves letting them keep more money in their pockets and bank accounts. Paying duly owed taxes is an obligation under law. There is no need to overpay.