As we get ready to welcome in a new year, one of the best things we can do is to review our finances and determine if there are any tax-savings strategies that we might be able to take advantage of. Here are eleven tips you may be able to use while you prepare for the start of 2024.

  1. Bunching Deductions. When calculating your Taxable Income, you subtract the greater of the Standard Deduction or your Itemized Deductions. Most people take the Standard Deduction. For 2023, the Standard Deduction amount is $13,850 for individuals and $27,700 for couples filing jointly (higher if you are over age 65 or blind). Itemized Deductions include your medical expenses, real estate taxes and state income taxes (currently capped at $10k) and charitable contributions. To bunch your deductions, you would make several years’ worth of charitable contributions in a single year and forego making donations for a few following years or accelerate your medical expenses. Depending on how much you contribute or spend in itemized deductions, if you bunch your deductions, it is possible that you may get over the standard deduction amount and can itemize your deductions.
  2. There are two tax credits available for home upgrades:
    • The residential clean-energy property credit allows you to take a credit for 30% of the cost of solar electric panels, solar-powered water heaters, wind turbines, geothermal heat pumps, fuel cells and battery storage technology. You may claim the clean energy credit for improvements to your main home, whether you own or rent it.
    • The energy-efficient home improvement credit allows for 30% credit of the cost of eco-saving upgrades such as insulation, central air, exterior doors and windows, water heater and pumps. Boilers have a $1,200 aggregate yearly credit limit, however some improvements may have a lower or higher cap. This replaces the $500 lifetime limit. Staggering upgrades over several years may produce the best tax savings.
  3. Electric Vehicle Tax Credit. You may be able to get a tax credit for up to $4,000 when purchasing a used electric vehicle and up to $7,500 for a new electric vehicle. There are criteria that both the purchaser and vehicle must meet to receive the credit, so you should review the specifics of the code to see if you are eligible. This includes a modified adjusted gross income eligibility cap of $150,000 for single taxpayers, $225,000 for household heads and $300,000 for couples filing jointly.
  4. The annual gift tax exclusion amount is now raised to $17,000 in 2023. This is the amount that an individual can give to as many individuals as they choose without incurring a gift tax or reducing their lifetime gift and estate tax exemption. This is up from $16,000 in 2022 and will increase to $18,000 in 2024.
  5. College 529 Savings Plans. If you are trying to save for college or want to help a relative save for college, you can contribute to a 529 college savings account. Depending upon your state’s tax rules, you may get a deduction for the contribution.  Appreciation in 529 plans is not taxed if the distribution is used for qualified education expenses. 2023’s contribution deadline is December 31, 2023.
  6. Qualified Charitable Distributions (QCDs). If you are age 70 ½ and over, you may consider satisfying your IRA’s required minimum distributions (RMDs) by directly transferring funds to a qualified charity, and in turn, keep your taxable income lower.
  7. Maximize your retirement plan contributions. You can contribute up to $22,500 to a 401(k) or 403(b) in 2023. For those age 50 or older, you can make an additional $7,500 in catch-up contributions. The IRA contribution limit for 2023 is $6,500 with an additional $1,000 if you are age 50 or older, with limits on eligibility.
  8. Tax-Loss Harvesting. Investors can use tax-loss harvesting, also known as tax-loss selling, for significant savings. By selling an investment that shows a loss in value, you can offset capital gains taxes that are due on profits from other investments. Your realized losses first offset realized gains, then you can claim up to $3,000 of capital loss and carry additional loss forward into following years. However, it is key to follow IRS regulations and avoid a “wash sale.” To benefit from tax-loss harvesting, you cannot sell or trade a security at a loss, and within 30 days before or after buy the same or substantially identical security. That would be considered a “wash sale” and would prevent you from being able to use that loss to reduce tax liability.
  9. Avoid underpayment penalties by paying your taxes through withholding or estimates. You can do a tax projection to determine if you owe money and make adjustments to the amount of money you have withheld from your paycheck or the amount of your quarterly tax estimates. The due-date for the 4th quarter estimated tax payment is January 16, 2024.
  10. Consider a Roth Conversion. You may want to convert some of your traditional IRA to a Roth IRA. The amount converted is subject to tax for the year of conversion, but there are no income limits for conversions and Roth accounts grow tax free.
  11. Take all Required Minimum Distributions (RMDs) The rules keep changing; it used to be age 70 ½, then it changed to age 72 and now it may be age 73 or even age 75. One’s first distribution must be made by April 1st of the year following your first distribution year. Penalties apply if you do not take at least the required amount timely.

With careful planning and review, it may be possible to save some money on your taxes by using these tips. However, every situation is different. If you have any questions, please contact us.