Here are moves you can make to reduce your taxable income. But the year is quickly coming to a close, so plan accordingly.
Max out pre-tax retirement savings. The deadline to contribute to a 401(k) plan to get a 2023 taxable income reduction is December 31st. So if your employer’s plan allows it, consider making a last-minute lump sum contribution. For 2023, you can contribute up to $22,500 to a 401(k), plus another $7,500 if you’re age 50 or older. Even better, you have until April 15, 2024, to contribute up to $6,500 into a traditional IRA. And as long as your income does not exceed phaseout limits, you can reduce your taxable income on your 2023 tax return.
Convert to a Roth IRA. Consider converting some or all of your traditional IRA, SEP IRA, or SIMPLE IRA into a Roth IRA. Although you pay income tax on the amount of the Roth conversion the year it is made, subsequent growth is tax-free in a Roth IRA, and withdrawals from the account are 100% tax-free after five years from the date of the conversion.
Tax loss harvesting. If you own stock outside a tax-deferred retirement plan, you can sell your under-performing stocks by December 31st and use these losses to reduce any taxable capital gains. If your net capital losses exceed your gains, you can net up to $3,000 against other income such as wages. Losses over $3,000 can be used in future years.
Selling appreciated assets. Consider selling appreciated assets in the tax year that helps you the most. While this strategy may be hard to accomplish this late in the year, it is still worthy of consideration. To do this, estimate your current year’s taxable income and compare it to next year’s projected income. Then sell the appreciated asset in the year that will yield the lowest tax. Remember to account for the 3.8% net investment income tax in your estimates.
Review health spending accounts. If you participate in a Health Savings Account (HSA), try to maximize your annual contribution to reduce your taxable income. Remember, these funds allow you to pay for qualified health expenses with pre-tax dollars. More importantly, unlike Flexible Spending Accounts (FSA), you can carry over all unused funds into future years. If you do have an FSA, you can carry forward a maximum of $610 from 2023 into 2024 if your plan allows this. The deadline for contributing to your Health Savings Account (HSA) and still getting a deduction for the 2023 tax year is April 15, 2024. The maximum contribution for 2023 is $3,850 if single and $7,750 for married couples. If you’re age 55 or older, you can add $1,000 to your HSA contribution.
While the year is quickly coming to an end, there is still time to reduce your 2023 tax liability, but only if you act now.
Have fun with this year’s holiday quiz!
Back by popular demand is this season’s holiday movie and TV trivia quiz! So while you’re waiting for your holiday dinner or just resting after a wonderful feast, break out this quiz to share with family and friends. Enjoy!
The song White Christmas, performed by Bing Crosby, was sung in a number of movies. In which movie did the song make its debut?
Holiday Inn. The song White Christmas was released in 1942 as part of the movie Holiday Inn. Many think that the song debuted in the movie titled with the same name. While extremely popular, the movie White Christmas was created in part to leverage the popularity of the song.
Bonus: Who won an Oscar for writing White Christmas?
A: Irving Berlin
In the movie It’s a Wonderful Life, what happens every time a bell rings?
An angel gets its wings…
Bonus: What was the name of the angel?
In the movie Home Alone, the family is going on vacation and accidentally leaves Kevin behind. Where were they going?
Bonus: Give yourself a point if you can name either of the thieves in the movie.
A. Harry (Joe Pesci) and Marv (Daniel Stern)
In the movie How the Grinch Stole Christmas, what three words are used to describe the Grinch?
Stink, Stank, Stunk
Bonus: Who voiced the Grinch in the famous cartoon?
A: Boris Karloff, who appeared in 174 films and is known for his role as the original Frankenstein, won a Grammy award for portraying the Grinch and narrating How the Grinch Stole Christmas.
Tom Hanks played six different roles in this popular holiday movie.
The Polar Express
Bonus: The Polar Express had a number of firsts. Name any one of them for a bonus point.
• First full-length animated movie released in IMAX format.
• First full-length movie to use animated 3D capture technology allowing creation without drawing each individual frame.
• First movie to be released with a Dolby Digital 5.1 soundtrack.
• First animated movie to have a song nominated for an Academy Award. The song was titled Believe.
In the movie A Charlie Brown Christmas, what does Charlie Brown do poorly that turns out all right in the end?
He buys a sad-looking tree. But in the end everyone gets the Christmas spirit and wishes Charlie Brown a Merry Christmas. Linus sums up the feeling: I never thought it was such a bad little tree. It’s not bad at all, really. Maybe it just needs a little love.
Bonus: Name the comic strip made famous by Charlie Brown and its creator Charles Schulz.
May you and yours enjoy the holiday season with peace and joy.
11 to 12 points: Deck the Halls! You are awesome.
8 to 10 points: You are dashing through the snow…no walking for you!
4 to 7 points: Ho! Ho! Ho! You are having fun besides watching holiday movies.
0 to 3 points: Holidays? What Holidays? Pass me a cookie, would you please?
— By Nancy J. Ekrem, CPA
DME CPA Group PC
Certified Public Accountants & Business Consultants