‘Tis the season to review your
investments and make some tax beneficial year-end moves.
Capitalize on Winners
Your investments are a good starting point for implementing tax-saving strategies. You can benefit from favorable tax rates on long-term capital gains by selling and taking profits on appreciated securities you’ve held longer than one year. Long-term gains are currently taxed at a maximum rate of 15% for most taxpayers and 20% for taxpayers with taxable income of over $492,300 ($553,850 for joint filers) in 2023.
Cut Your Tax Bite With Losers
Investments that have lost value and have consistently underperformed may be perfect sell candidates, particularly if you’re not confident of a turnaround. By selling your losers, you can use your losses to balance out gains on appreciated securities you’ve sold. Capital losses are fully deductible to offset capital gains from any source and up to $3,000 of ordinary income each year ($1,500 if married filing separately). Any losses that you can’t deduct for 2023 can be carried over for deduction in future years, subject to the same limits.
Don’t make taxes your only reason for selling a security. Many factors enter the decision to sell securities, including how the sale of a specific investment would affect your overall portfolio.
Donating Appreciated Securities
Many public charities accept contributions of publicly traded stock or other securities. A donation of highly appreciated securities held more than one year provides a potential tax deduction for the securities’ fair market value while also avoiding the capital gains tax that would be due if the securities were sold.
Need an RMD in 2023?
Your first RMD (required minimum distribution) must be taken by April 1 of the year following the year in which you turn 72 for those who reached age 72 by Dec. 31, 2022. The first RMD for those turning 72 after Dec. 31, 2022 must be taken by April 1 of the year following the year you turn 73. After that, your RMDs must be taken by Dec. 31 of each year.
Want to save Taxes on the RMD? Use a Qualified Charitable Distribution
A qualified charitable distribution (QCD) allows you to donate to qualified charities directly from your individual retirement account (IRA). While there is no tax deduction allowed for the donated assets, they don’t count as income either. What’s more, a QCD can help satisfy your annual required minimum distribution (RMD). To make a QCD you must be at least 70½ years of age. Gifts must be made directly from your traditional or Roth IRA to a public charity. Up to $100,000 may be transferred annually per spouse.
Heir to an inherited IRA? The IRS is providing relief to heirs of inherited IRAs who are subject to the 10-year rule, allowing them to skip required minimum distributions in 2023. However, there are reasons why one should take an RMD in 2023, although not required:
- If he has high medical expenses, the medical expenses will offset the RMD income eliminating the income tax on the RMD
- By taking an RMD in 2023, he will have a smaller balance to distribute in the remaining years of the ten RMD years, avoiding larger RMDs at higher tax rates
Contact your tax advisor at Urbach & Avraham, CPAs to discuss options suitable for you.