Nine Year-End Tips to Save on Taxes

While 2023 will soon be over, there’s still time to capture some last-minute tax deductions. Here are nine handy tips that could help you shrink your tax bill before the New Year starts.

1. Prepay your taxes

Even if your property tax bill isn’t due until next year, making the payment in December will allow you to claim the tax deduction for 2023. If you pay estimated state income taxes on a quarterly basis, you can also prepay your state taxes. As we’ll discuss below, you may not receive the full benefit of prepaying your state income tax and property taxes if you’re subject to the alternative minimum tax (AMT).

2. Pay your January mortgage payment in December

Submit your January mortgage payment before the end of December, which will increase your 2023 mortgage interest deduction.¹

3. Avoid the AMT if possible

If you might be subject to the dreaded AMT, be careful about prepaying your property and state taxes early. Dual-income couples who live in high-tax states and have children are more susceptible to getting snagged by this tax.² Consult your tax professional about this potential tax trap and steps you may take to sidestep it.

4. Defer income

This will likely be easier to do if you are self-employed. If you’re looking to reduce your 2023 income tax obligations, consider delaying your billing until late December or early January. If you expect to receive a financial bonus at year-end, see if you can postpone it until January. In our opinion, deferring income only makes sense if you expect to be in the same or a lower tax bracket in 2024.

5. Bunch your medical bills

Americans can only deduct medical expenses on their tax returns if their bills exceed 7.5% of their adjusted gross income.³ If you find yourself close to clearing that hurdle, consider paying other medical expenses now, in order to boost your total past the 7.5% threshold. For example, you might prepay your January health insurance premium, make doctors’ appointments now rather than early in 2024, and buy required medical supplies and prescription drugs that qualify for the deduction.

6. Harvest investment losses

If you want to dump an investment loser, you may consider selling it and pocketing the capital loss. This loss can offset income that your overall portfolio has generated. You can use the capital loss to neutralize capital gains and up to $3,000 in ordinary income.⁴ If you can’t take advantage of the entire capital loss in one year, you may carry forward the balance to future years. Tip: Be sure it makes sense to sell a certain losing investment, and not just to claim the capital loss. The prospects may still be bright for that investment and it could end up being a winner. Consult with your Corient Wealth Advisor to determine when is an opportune time to claim a capital loss.

7. Donate appreciated investments to charity

Now may be a great time to donate stock or other securities with long-term capital gains directly to your favorite charity. If you sell a profitable investment and donate the proceeds to a charitable organization, you are subject to tax on the gain. If you transfer the investment to a charity instead, you avoid the tax and pocket a tax deduction based on the market value of the investment on the date of the donation.⁵

8. Capture a charitable deduction with a credit card

When you contribute to a charity by credit card, you will receive credit for the donation based on the date of the charge, and not when you actually pay your bill. Consequently, you can donate via a credit card in December and capture the deduction in 2023, but pay the bill in January, thereby bringing forward your tax deduction to help lower the current year’s taxes.⁶

9. Donate your IRA distribution

Retirees who must take yearly required minimum distributions (RMDs) from their individual retirement accounts (IRAs) can donate up to $100,000 to a favorite charity in 2023 with their withdrawal. If spouses are both age of 70 ½ or older, each spouse may exclude up to $100,000 from their gross income for tax-reduction purposes.⁷ A donated distribution will not be treated as income for the taxpayer on their return if the RMD is made directly to the charity from their IRA.

¹ https://smartasset.com/mortgage/the-tax-advantage-of-making-an-extra-mortgage-payment-this-year
² https://www.wsj.com/articles/SB1011379330927315400
³ https://www.irs.gov/taxtopics/tc502
⁴ https://www.irs.gov/taxtopics/tc409
⁵ https://www.tiaa.org/public/retire/services/preparing-for-retirement/giving/charitable-giving
⁶ https://www.consumerreports.org/charitable-donations/rules-for-last-minute-charitable-donations/
⁷ https://www.irs.gov/newsroom/reminder-to-ira-owners-age-70-and-a-half-or-over-qualified-charitable-distributions-are-great-options-for-making-tax-free-gifts-to-charity