This list is meant to be a guide for potential ways to help our clients reduce their tax liabilities. Not all items are applicable for every client and each has its own restrictions and limitations. None should be undertaken without individual consultation with regard to your specific tax situation. Please call our offices for an appointment with Jim Gibbs to learn more.

Timing of Capital Gains

Planning long-term dispositions while considering the maximum taxable income applicable to the zero- and fifteen-percent capital gains rates can help minimize taxation.

Gifting Stock to Children for Tuition

Taxpayers in higher income tax brackets should consider gifting appreciated stock to children to help them pay for college tuition, so long as the gift does not surpass the annual gift exclusion ($17,000 for 2023).

Tax Loss-Harvesting (Long-Term)

Tax loss-harvesting allows taxpayers to sell some long-term investments at a loss to offset their capital gains to lower their taxes and rebalance their portfolios with the proceeds received. To claim the capital loss, the investments must be sold before the calendar year ends. The proceeds from these investments sold at a loss can then be reinvested to rebalance their portfolio.

Tax Loss-Harvesting (Short-Term)

Tax loss-harvesting allows taxpayers to sell some investments at a loss to offset their short-term capital gains to lower their taxes and rebalance their portfolios with the proceeds received. To claim the capital loss, the investments must have been sold before the calendar year ends. The proceeds from these investments sold at a loss can then be reinvested to rebalance their portfolio. Investments to consider for disposition should include stocks in a losing position, stocks not subject to wash sales rules, and/or crypto/virtual currencies.

Third-Party Independent Installment Sale

Spread capital gains taxes over several years with a third-party, independent installment sale. These contracts allow you to sell a highly appreciated asset – like real estate or intellectual property — to an independent trust or trustee that’s not related to you. Under the contract, the trust pays you for the asset in structured future payments. This allows you to pay capital gains tax for the asset over time, instead of owing all the tax in one year.

Bunching Itemized Deductions

Many of your everyday expenses can be itemized as deductions on your income tax return to save money at tax time. However, unless you have a large amount of qualifying expenses, you might be better off taking the standard deduction. Since you can decide every year whether you want to itemize or not, careful planning can help you maximize your deductions in the years you choose to itemize.

Employee-Accountable (EE) Reimbursement Plan

An accountable reimbursement plan lets employees get paid back for certain job-related expenses and lowers the business and employee’s taxes. These plans are advantageous because employers can deduct many expenses that employees can’t, like uniforms, cell phone costs, and per diems. Payments made under an accountable reimbursement plan are excluded from the employee’s gross income and aren’t reported on Form W-2. By reimbursing expenses and lowering wages, the employer and employee can both save on payroll taxes. Using an accountable reimbursement plan also lowers the employer’s taxable income by the deductible amount of expenses incurred.

401(k) Employee (EE) Contributions

Contributing to employer-sponsored plans like a 401(k) is a triple benefit, including 1) reducing taxable income by the amount of contributions, which reduces income taxes by your marginal rate; 2) the savings grow tax-free until withdrawn and; 3) many plans offer employer matching contributions, which is like earning free money just by saving. Employee contributions are reported on W-2, Box 12, code D. Employee pre-tax contributions lower taxable income and the tax savings are calculated using the applicable federal and state tax rates unless changed.

403(b) Employee (EE) Contributions

Contributing to a tax-sheltered annuity like a 403(b) is a triple benefit, including 1) reducing taxable income by the amount of contributions, which reduces income taxes by your marginal rate; 2) the savings grow tax-free until withdrawn and; 3) many plans offer employer matching contributions, which is like earning free money just by saving. Employee contributions are reported on W-2, Box 12, code E. Employee pre-tax contributions lower taxable income and the tax savings are calculated using the applicable federal and state tax rates unless changed.

Backdoor Roth Individual Retirement Account (IRA)

Individuals that are not able to make deductible IRA contributions may consider making non-deductible IRA contributions, then rolling the IRA over to a Roth IRA. The contribution to the Roth IRA, while not deductible in the current year, allows future income and distributions to be tax-free. While Roth IRA contributions are subject to adjusted gross income limitations, conversion of an IRA to a Roth IRA is not. The amount of the contribution to all IRAs is limited to $6,000 per year or $7,000 if the taxpayer is aged 50 or over.

Mega Backdoor Roth Conversion

Individuals who can’t contribute to a Roth IRA may be able to make an after-tax contribution to their 401(k) and roll it into a Roth IRA or Roth 401(k). To use this strategy, make after-tax contributions to the 401(k) plan, then take an in-service distribution of the amount you contributed and immediately roll that amount into a Roth IRA. While not deductible in the current year, converting to a Roth IRA allows future income and distributions to be tax-free. The total of all 401(k) contributions for the year – pre-tax, after-tax, and employer matching – can’t exceed $61,000 (or $67,500 if you’re over 50 years of age). This strategy will only be effective if your 401(k) allows after-tax contributions and in-service withdrawals or transfers.

Roth IRA Conversion

Converting a traditional IRA to a Roth IRA will allow the taxpayer to avoid tax on IRA distributions upon retirement offset by the tax due upon conversion. Additionally, the conversion will allow the taxpayer to avoid Required Minimum Distributions and designating heirs as beneficiaries within the IRA allows the heirs to choose a longer timeline for the distribution of the funds thereby delaying tax implications.

Traditional Individual Retirement Account (IRA) Contributions

Taxpayers with earned income who aren’t covered by a retirement plan at work can lower their tax bill by contributing money to a traditional individual retirement account (IRA) by April 15th. Taxpayers whose work offers a retirement plan may also contribute to an IRA but might not be able to deduct those contributions on their tax return, depending on their income level. Traditional IRAs also allow savings to grow tax-free until withdrawn. IRA withdrawals after age 59 ½ are taxable and subject to required minimum distribution (RMD) rules. Deductible IRA contributions lower taxable income and the tax savings are calculated using the applicable federal and state tax rates unless changed.

Roth IRA Contribution

Contributions to a Roth IRA allow for tax-free retirement distributions. Additionally, these contributions will allow the taxpayer to avoid Required Minimum Distributions and designating heirs as beneficiaries within the IRA allows the heirs choose a longer timeline for the distribution of the funds, thereby delaying tax implications.

Charitable Donation of Appreciated Stocks

Charitable giving can be one of the most fulfilling parts of having wealth. Taxpayers can maximize their philanthropic impact by donating appreciated stocks to a qualified charity and will also maximize their tax savings by exempting the stock appreciation from the capital gains tax (up to 15% or 20% tax rate). In addition, they will be able to deduct the full fair market value of the gift from their income taxes, if itemized, up to the IRS-permitted limits (30% AGI).

Donor-Advised Fund to Time Contributions

Donor-advised funds offer donors the opportunity to obtain a deduction for a contribution to a public charity without having to commit to a particular charitable recipient.

Individual Retirement Account-Qualified Charitable Distributions (IRA-QCDs)

Taxpayers who are 70 1/2 years old and older who don’t need income from their IRA can lower their AGI using qualified charitable distribution (QCD) strategy to efficiently disperse money to a charity of their choice while satisfying the required minimum distribution amounts set by the IRS (72 years old or 70 1/2 years old before December 31, 2019). A qualified charitable distribution (QCD) is a direct transfer of funds from your IRA custodian to a qualified charity that allows you to exclude the amount from taxable income. QCDs can count toward satisfying your required minimum distributions for the year so long as certain rules are met.

Child Tax Credit

The Child Tax Credit can significantly reduce your tax bill. If the child tax credit is close to being limited by modified adjusted gross income, it may be beneficial to adjust the timing of income or expenses to maximize the credit. If a child turns 17 next year, the child tax credit will no longer be allowed so it may be necessary to adjust withholding or estimates.

Residential Energy Credit

Taxpayers may be able to take advantage of the Residential Energy Credit which provides an incentive for purchasing alternative energy products and equipment for their home. The allowable credit is up to 30% of an unlimited amount of costs you incur to purchase and install solar electric systems, geothermal heat pumps, solar hot water heaters, wind turbines, and fuel cell property. For the 2023 tax year, the amount of the allowable credit will change to 30%.