It’s time to get charitable contributions in line, figure out deductions and make sure you’ve contributed the maximum to your retirement accounts. For tax year 2023, the standard deduction increased to $13,850 for single filers and $27,700 for married couples filing jointly. Therefore, if possible, make sure that your itemized deductions add up to more than those numbers.
Charitable Contributions
You can deduct your 2023 charitable contributions as long as you itemize your deductions and donate to qualified organizations. If it is hard to get over the standard deduction, you can think about combining your donations for the next few years and donate them this year to a Donor Advisor Fund (DAF). For instance, if you give $2,000 per year, you can make a one time $10,000 donation and this DAF allows you to spread out your donations over 5 years. The limit for charitable deductions is 60% of your adjusted gross income (AGI).
- You can donate appreciated securities. You claim the full value of the donation and avoid capital gains tax that you would realize if you sold the security and donated the money to the charity.
- Those who are 70 ½ or older can transfer up to $100,000 per year directly from an IRA to an eligible charity without paying income tax on the transaction (Qualified Charitable Distribution) and this can be used to satisfy your annual Required Minimum Distribution.
Employer Benefits
- For 2023, if your employer offers this, you can contribute to a Healthcare flexible‐spending account up to $3,050, and the rollover maximum from the prior year is $610.
- Contribute to a Health Savings Account; if you have a self‐only High Deductible Health Savings Plan, you can contribute $3,850. For family coverage $7,750.
- You can contribute to a 401(k) or 403(b), this year the maximum is $22,500 a year (up from $20,500). You can also contribute an extra $7,500 as a catch‐up contribution if you’re 50 or older. This would be deducted from your taxable income, unless you make the Roth 401k choice. If you are uncertain, what would be the best for you to choose, contact us.
Invest in yourself:
- If you have a traditional or Roth IRA, you can now contribute up to $6,500 (up from $6,000). If you’re 50 or older, you can put in an extra $1,000. There are income limits, but when you are over that income limit, you can contribute to an IRA and then convert it to a Roth IRA. Make use of this loophole as long as it exists.
- Roth Conversion: If it makes taxable sense, you should seriously consider turning part of your IRA into a Roth. ‐ Self‐employment income for solo practitioners, freelancers and partnerships without employees: Open a Solo 401(k) plan for retirement savings. This allows you to save more tax‐deferred money than a SEP IRA.
If you are retired:
- Make sure you have taken your Required Minimum Distribution (RMD) for 2023. When you have more than one tax‐deferred account, you can take the total required distribution over all your accounts from one account. In 2023, the age to start taking RMDs rose from 72 to 73. Those born in 1951 turned 72 in 2023 and will be 73 in 2024.
If you have children:
- The child tax credit (CTC) lets you credit up to $2,000 per dependent child under the age of 17. The income limit is $400,000 for married filing jointly and $200,000 for all the others.
- The American opportunity tax credit (AOTC) is a partially refundable credit that pays for education expenses for students in the first four years of college. You can claim up to $2,500 per student—and if the credit brings your tax bill to zero, 40% (up to $1,000) will be refunded to you. Grandparents and relatives are eligible for this too.
- Don’t forget 529 plans for parents, grandparents, and other relatives. Over 30 states and the District of Columbia currently offer a full or partial tax deduction or a tax credit for 529 plan contributions. Check your state’s rules. Remember, 529 Plans, like retirement plans grow tax free. If the money is used for approved education expenses, it is not taxed. And with new rules, you can now rollover any leftover in 529 Plans and use it for Roth IRA Contributions.
- If you have college debt that you are paying down, you may be able to deduct up to $2,500 of student loan interest paid each year. And you don’t have to itemize on Schedule A to get this money saver. The break is instead claimed on Schedule 1 of Form 1040. But there is an income limitation. The credit amount is generally reduced to zero if your modified AGI is over a certain amount.
- The annual gift tax exclusion for 2023 rises from $16,000 to $17,000 per donee. So, you can give up to $17,000 ($34,000 if your spouse also wants to make a gift) to each child, grandchild, or any other person in 2023 without having to file a gift tax return or tap your lifetime estate and gift tax exemption.
