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ArticleYear-End Tax Planning Ideas to Close Out 2023



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By Steven Novack, CPA, CFP®, MBA, Senior Financial Advisor

As the end of 2023 comes into view, it’s worth taking some time to think about ways you can prepare to reduce your tax burden for this year.

There are a variety of strategies that can help you do this. As a senior financial advisor specializing in tax planning at Altfest Personal Wealth Management, I’d like to share some useful end-of-year tax planning tips. Here’s a look at what we’ll discuss:

  • Retirement Planning
  • Charitable Giving
  • Leveraging Itemized Deductions While You Can
  • Gain-Loss Harvesting
  • Using Education Expenses
  • Tax-Bracket Management
  • SECURE Act 2.0 Implications for Retirement


First, Focus on Retirement Planning

Number one, maximize what you contribute to your individual retirement account (IRA), your 401(k), your 403(b), or your 457, depending on what type of plan you participate in.

Put away as much as you feel comfortable doing. If you can save the maximum, do so. This year, for someone under 50 that amount is $22,500; someone who’s 50 or more can save $30,000 for retirement. The IRA has lower limits, at $6,500, or $7,500 for those 50 or over this year. Those limits increase with inflation each year, but make sure you’re contributing close to the limit if you have the liquid assets and can afford it. Putting away money earlier in your career rather than later is always a benefit.

Next, under the topic of retirement planning, optimize traditional versus Roth IRAs. If you have an option to do one or the other, that’s something you can talk to your accountant about, or a financial planning firm like Altfest, and we can help maximize your profitability from a tax-saving standpoint by looking at where your tax rates are now versus where they will be in the future.

A Roth conversion involves taking money that is in a traditional IRA or 401(k) and moving it into a pretax Roth account. Paying the taxes upfront now on those dollars lets the money grow tax-free for the rest of your life – or for another 10 years for your beneficiaries through your estate once you die.


Charitable-Giving Strategies

Another form of retirement tax planning, if you’re charitably inclined and you’re 70 ½ years old or older, comes from making a qualified charitable distribution, or “QCD.” That allows you to take money directly from your required minimum distribution (RMD) mandated at that age and distribute it to a chosen charity without having to pay income tax on it. There are some benefits to this option, so that’s another move we suggest.

Depending on what funds you have available for giving overtime, there are ways to make a large contribution in one year, and then allocate it out over multiple years. That uses a donor-advised fund, or “DAF.” Usually, the minimum to put in is $5,000, but if you have appreciated stock, that also qualifies. You don’t pay the capital gains on appreciated stock in a vehicle like that. With a DAF, you can try to aggregate your charitable giving if you’re not much over the typical standard deduction.

In other words, you can commit to your charitable giving in a single year’s lump sum, then allocate it out to the charities over, say, three to five years. But you get the tax benefit in the year you put the funds in the charitable deduction, in this case, the DAF, because you actually are giving up control of it. You can allocate the donation to whomever you want from that point forward, but you can’t take that money back out.


Leveraging Itemized Deductions While You Can

As you may know, several changes to itemized deductions that became effective in late 2017 are likely on their way out, so it’s important to plan for their expiration before late 2025.

Among itemized deductions to be considered this year may be large medical expenses greater than 7.5% of your adjusted gross income, which can be deducted on your Schedule A or itemized deduction when filing.

For property and real estate taxes, we have the state and local tax, or “SALT,” deduction that limits how much tax you owe on those items. For example, in New York and New Jersey, it’s currently $10,000, or $5,000 per spouse filing jointly. SALT limits were established in the Tax Cuts and Jobs Act (TCJA), the legislation that will sunset in 2025 unless Congress votes otherwise, which we see as unlikely.

Other TCJA tax changes anticipated to be in place only a short while longer include mortgage limitation. Mortgages are now limited to $750,000 of principal borrowed. Before TCJA, it used to be $1 million plus a home equity line of credit, potentially bringing your total allowed to $1.1 million, but that changed as of late 2017. All these provisions will end at the end of 2025.

The standard deduction for individuals in the TCJA nearly doubled to $12,000 from $6,500 per filer and has continued to increase yearly, but it will drop back once the act sunsets. Medical expense deductions, mentioned earlier, will rise back to 10%, from 7.5% of your adjusted gross income. Charitable contributions, which are limited now to 60% of your adjusted gross income, will decline to 50% at the end of the TCJA regulations. On the positive side, though, some itemized deductions that were eliminated by the act, such as deducting accountant and tax preparation fees, are likely to be reinstated for 2026.

If you are old enough and have a higher income, it’s likely you have participated in the Alternative Minimum Tax. Before the TCJA changes, in the New York-New Jersey area, if you had high earnings and you took itemized deductions and your income went under a certain level, you hit what was called the Alternative Minimum Tax, which required you to pay at least a certain amount over the earnings. But because you had high state tax deductions and you had high real estate tax and other exemptions, your tax bracket could be lowered. Let’s say you are in the 33% tax bracket, but you can bring yourself down to 20% through deductions at present. In the future, however, the amount of your income considered taxable is going to rise again, once the TCJA expires.


Gain-Loss Harvesting Ideas

Gain-loss harvesting is another area we look to for tax advantages. As an investor, if you have short-term gains and long-term losses, that’s a great situation because you’re offsetting your ordinary income against a capital gains loss. You are allowed to take that income up to $3,000 over your total gains for the year, and that will offset ordinary income. Any amount after that gets carried forward to the following years.

If you’re thinking about end-of-life financial planning and you’re getting older, using those capital losses today makes sense by recognizing them and receiving the tax savings. The loss will not carry forward to the next generation, so you do want to make sure that there’s a step-up basis, but you should try to use the loss while you can.

If we assume tax rates are going up in the future and you know whether your income next year is going to be higher or lower, we work with clients to think about when to take these gains and losses, to make sure we act in years in which they should recognize fewer gains when they have higher income. If you know you’re going to have a lower-earning year, then it might be a better time to take some gains, for example.


Maximize Education-Expense Planning

When it comes to planning for education financing and the potential tax implications of that, if you’re a grandparent, there are certain ways to do it differently than if you’re a parent. The assets as a parent go into the child’s family FAFSA, or Free Application for Financial Aid form. If you’re a grandparent, however, the money given doesn’t get added to the child’s family income total and, in fact, may be disadvantageous for your college students in their early years at university. Any money you put in toward the first year and a half of a grandchild’s college expenses gets added to the child’s income as 50% of his earnings. So, if you gave her $50,000, $25,000 would go toward those taxable earnings. That would reduce any scholarship or benefits, if subject to an income limitation.

Instead, it’s recommended that you make a college-expense gift later on, because of the two-year lookback used to measure college funding. When the school looks back two years during the student’s senior year, in this case, the money was not there, and it will never affect any of the scholarships your student may be eligible for.

Right now, when it comes to estate planning, the tax exclusion for a yearly gift is $17,000 per person for the person giving and the person receiving. If you have two children, you and your wife together can give $17,000 four times over to the children if you wanted to do that, to remove money from your estate. Or you can pay medical bills for someone else, as long as you pay directly to the medical institution.

In this process, you shouldn’t pay the student or medical patient first because that would be considered a gift. The same is true for actual college tuition – you should pay the college directly, and not the child or parent first, then that’s not considered a gift.


Learn About Tax-Bracket Management

Another suggestion I’d like to offer is called tax-bracket management. This refers to handling the rise and fall of one’s income in a tax-beneficial way.

If you know you are going to have a good year financially, maybe you want to roll a bonus you receive over until next year and pay a little more in taxes later, so you’re not pushing yourself up into a higher tax bracket in the year it’s awarded. Other types of events, such as selling a building or house or liquidating large assets, can be handled in this way too, to manage the timing of taxes owed on the payout.


SECURE Act 2.0 Implications for Retirement

Last, let’s think about the SECURE Act 2.0. At least a couple things from this late 2022 retirement regulation could affect you this year. It was a modification of the original SECURE Act that made several significant changes to federal retirement account rules.

Among the dozens of provisions in the SECURE Act 2.0 are an increase in the age at which you must make required minimum distributions, or RMDs, from your account. The SECURE Act raised the age to 72 from 70 ½, and the more recent SECURE Act 2.0 increased that further, to 73 this year. In 2033, it will go all the way up to age 75. Also, the penalties for failure to file RMDs became a little more realistic with the SECURE Act. 2.0.

One more benefit from the new version of the SECURE Act: In the past, if you had a Roth 401(k) through a company, you were required at the mandatory age to take RMDs from it, even though they weren’t taxable. (You’re not required to take an RMD out of a Roth IRA, but you are out of a Roth 401(k).) A little crazy, because the simple way around this rule was to withdraw the money from the Roth 401(k) and roll it into a Roth IRA, and your RMD was accounted for but not spent. Legislators recognized the silliness in that rule and reversed it.


Find Out More

At Altfest, we stand ready to help you find the most beneficial ways to plan for tax time. We know everyone’s scenario is unique, so reach out to our firm with any tax planning, financial, or estate planning questions you may have. Altfest advisors will review your circumstances and offer ideas about which strategies could best serve you and your family.

If you’re not yet an Altfest client, please book some time for a complimentary consultation






Investment advisory services provided by Altfest Personal Wealth Management (“APWM”). All written content on this site is for information purposes only. Opinions expressed herein are solely those of APWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.

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