Year-End Tax Planning

Ashley Klemann, CFP® • Jan 1, 2024 • TAXES

As the end of 2023 approaches, it’s time to start thinking about year-end tax planning. While some things are out of our control when it comes to taxes, others are within our control. So, what can you control and what should you do about it? Below is a list of items to consider:

Tax Projection

Completing a tax projection with your financial or tax professional is critical. It estimates your tax liability, allowing you to plan for potential tax payments in April.

Opportunities To Reduce Taxes

If you are looking to reduce your tax liability and are currently contributing Roth dollars to your 401(k), consider adjusting this to pre-tax contributions for the rest of the year to reduce your taxes owed. For the 2023 calendar year, you can contribute $22,500 plus an additional $7,500 catch up if you are age 50 or older. For tax year 2023, 401(k) contributions are due 12/31/2023. If you have maxed out the retirement plans available to you through work and still have excess money to save, you can also contribute to an IRA. However, be mindful of the deductible phaseout income limits. The phaseout range for individuals starts at $73,000. For married individuals filing a joint return, the phaseout range starts at $116,000. This means that although you could contribute to an IRA as a married filing jointly filer with a household income of more than $136,000, the contribution will not reduce your tax liability. IRA contributions for 2023 are due April 18, 2024.

When registering for your benefits through your employer during open enrollment this fall, consider electing a high-deductible health insurance plan. If you are on a high deductible health insurance plan you are eligible to contribute to an HSA. For 2023, the maximum you can contribute is $3,850 for individuals and $7,750 for families. If you are age 55 or older, you are also eligible to make a $1,000 catch up contribution. In addition to another tax-deferred savings vehicle, an HSA provides savings on your tax return. If you spend these dollars on eligible healthcare expenses, these dollars are never taxed. Additionally, if you are able to cash flow healthcare expenses without the help of the HSA funds, you can consider investing these funds. At age 65, under current law, you can take out money in your HSA for non-medical expenses without penalty. Like an IRA, you would owe income tax on those funds when withdrawn.

Tax-loss harvesting is another great way to reduce your tax liability and can help to offset capital gains from things like investments, a home sale or a business sale. Tax-loss harvesting is when you sell a holding in your portfolio that has gone down in value from the time you purchased it and then buying another, very similar fund, shortly thereafter to replace it. By doing this you have captured a capital loss while still being allocated to the market in a very similar way as you were before. Any losses not “used up” in any one tax year can be carried forward indefinitely on your tax return to offset gains in future years. The market does not have to be trending downwards to take advantage of these opportunities, however, in years where the market is not doing as well, tax-loss harvesting opportunities present themselves more frequently. This strategy is something that Heritage Wealth Architects does regularly behind the scenes in client portfolios and an opportunity that individual investors often miss or don’t have time to monitor and execute on their own.

Opportunities To Reduce Taxes

If you are in a lower tax bracket this year than you are projected to be in future years, consider paying tax now on your pre-tax assets to max out your current tax bracket and convert funds to Roth. Oftentimes, the years after you retire and before your required minimum distributions start are ideal years to consider a Roth conversion. Your Roth dollars are likely the last money you will touch and are a great asset to pass on to kids or grandkids.

Required Minimum Distributions (RMD)

Don’t forget about your required minimum distributions due out of your IRAs, inherited IRAs and 401(k)s before year-end. The amount of required distribution can depend on the account type, registration, and your age, so be sure to verify your understanding of the requirements. If you turn 73 post-December 31, 2022, and have a pre-tax IRA, 401(k), or other retirement plan, you are required to take your first RMD by April 1st of the year after you reach age 73. Although your first distribution isn’t due until the year after, you may still want to take it before year-end as you will also be required to take the second distribution the following year as well. On the other hand, if you inherited an IRA from a non-spouse, you most likely will have to start required distributions from those accounts much earlier.

Charitable Contributions & Gifting

If you are charitably inclined, rather than giving cash, consider donating stock. Nowadays, most charities accept stock the same way they accept cash donations. If you donate highly appreciated stock to a charity, you have the benefit of never having to pay the tax that you otherwise would if you sold the stock to cash while helping out a cause you care about. On the flip side, when the charity sells the stock, they do not have to pay the taxes in the same way you would given their tax status as a charity. If you are 70.5 or older, you can make these donations from your IRA in what’s known as a qualified charitable distribution. This has the added benefit of reducing the amount of your required minimum distribution if you are of RMD age or, if before your RMD age, it will help to reduce the amount of your future RMDs by reducing the IRA balance.

If you are planning on giving gifts to family or friends, the same idea applies. Instead of gifting cash, consider gifting them stock that you already own. For younger investors, this may help introduce them to investing sooner than they otherwise would. For the 2023 calendar year, you can give $17,000 to another individual without having to file a gift tax return. As a married couple filing a joint return, this means you could give $34,000 to an individual or $68,000 to another married couple.

If your gifts are in the form of 529 contributions, you have the option to “superfund” the account and make 5 years’ worth of contributions at once for a total of $170k as a married couple filing jointly. If cash flow allows, this can be beneficial as the funds can be invested sooner and have more time to grow before the education expenses start coming due.

What financial documents should you keep and for how long?

For more information about how long to keep various documents needed for your tax return, please see the below article from the IRS.

How long should I keep records? | Internal Revenue Service (

As always, your team here at HWA is here to help. Please contact us with any questions.

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