Year-End Tax Planning Considerations for Individuals

Planning Strategy

Details

Opportunities

Gift/Estate Planning

The 2023 annual exclusion amount is $17,000 per person per recipient and it will increase to $18,000 in 2024. 

The current lifetime gift/estate tax exemption for 2023 is $12.92 million per person and is scheduled to increase to $13.61 million per person for 2024.  These higher exemptions will automatically sunset on January 1, 2026 absent any additional legislative action.  At that time, the exemptions will revert back to the 2017 levels which are about half of the current amounts

Consider paying for educational and medical expenses on behalf of another person. (This can be on anyone’s behalf and is not limited.)  As long as the payments are made directly to the educational or medical institution, they are not considered a taxable gift and do not count toward the annual exclusion or lifetime exemption.

If you’re considering substantial gifts, complete them before the end of 2025.

Charitable Planning

There are many options available to achieve your charitable goals.  Depending upon the amount of your charitable contribution and your specific tax situation, you will want to consider whether the gift should be made in cash, appreciated securities or other assets and whether the gift should be made directly to the charitable organization or to a donor-advised fund.  Since the deduction limits differ depending upon the various methods used, it can be helpful to discuss options with your PKF O’Connor Davies team in advance of making the gift, so that proper tax projections and planning can be done, with an eye toward ensuring your overall goals are met.

For some taxpayers who typically do not itemize their deductions, it may also make sense to “bunch” your charitable contributions. This involves making two- or three-years’ worth of charitable contributions in the current year so that you maximize your tax deduction by exceeding the standard tax deduction otherwise available. 

Taxpayers who receive a required minimum distribution (RMD) but do not need the funds, can also consider a qualified charitable distribution from their IRA.  Individuals can direct up to $100,000 from their IRA to go directly to a qualified charity and their taxable income is reduced by that amount.

Tax Loss Usage

Investment portfolios should be reviewed to consider if there are any losses that should be recognized before year-end to offset any capital gains. 

In cases where losses are greater than gains and an overall loss is recognized, $3,000 of that loss can be used to offset other taxable income in the current year and the remaining losses can be carried forward to future tax years

Roth IRA Conversion

While a Roth IRA conversion will result in taxable income, it may still make sense to convert your IRAs, depending upon your tax rate and other tax attributes.  Some advantages of a Roth IRA over a traditional IRA include non-taxable withdrawals and no required minimum distributions. 

If your IRA has decreased in value, it may make sense to convert now at a lower value and allow future growth to become tax free.  This is another area that your team at PKF O’Connor Davies can assist in providing projections to help determine the most tax advantageous timing and amount given your situation.