Year-end tax planning decisions may sometimes result in tax savings. Consider these strategies when you finalize your planning for the year.
- Careful timing of when you sell capital assets may help reduce your federal income tax liability. If you have held a capital asset for close to 12 months that has appreciated in value and you want to sell it, try to wait. You can take advantage of the lower long-term capital gains rates if you hold the asset for over 12 months before selling.
- Evaluate at year-end whether you could benefit from tax-loss harvesting – selling a losing investment to offset gains. If your capital losses exceed your capital gains, your excess losses up to $3,000 (single or married filing jointly) can be used to offset ordinary income. Any additional losses can be carried forward to future years.
- If you are in a high tax bracket, you may want to transfer appreciated assets through gifting to others and/or relatives in lower tax brackets. The gift tax exclusion or exemption limit you can give for 2023 is $17,000 per person. This is a strategy where you can pass on some of your legacy to loved ones while still living.
- Investors who reach a certain age are required to take required minimum distributions (RMDs) each year from their individual retirement accounts (IRAs). RMD rules have changed throughout the pandemic and with the passage of the Secure Acts. You will face a hefty 25% tax penalty on amounts not withdrawn from your IRA to meet the RMD, so be sure to speak with your tax advisor and financial advisor to ensure you’ve met your obligations. If you are a traditional IRA owner and required to meet your RMD, you have the option to make a qualified charitable distribution and gift up to $100,000 from your IRA to a qualified charity. This is a nontaxable distribution from your IRA and can be used to satisfy an RMD.
While keeping in mind your long-term goals, meet with your financial advisor and coordinate with your tax professional to examine nuances and changes that could impact your typical year-end planning. If you need assistance with your year-end planning, TFCU Financial Advisors offers complimentary consultations and a financial planning program designed to help you meet your specific needs and future goals.
TFCU Financial Advisors
6501 Tinker Diagonal, MWC
(405) 737-0006
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