The Singing CPA? Offers Year-end Tips for People Who Don’t Like Paying Taxes ?

Steven ?B. Zelin, CPA, Managing Member of Zelin & Associates CPA LLC in New York City, The Singing CPA?, has some year-end tax tips to offer to those businesses and individuals who really don’t like paying taxes.?

1.?????? Double-check Your Withholding -?Look at your tax bracket. Taxpayers should make sure their withholding and estimated taxes align with what they actually expect to pay. If they find themselves in danger of being penalized for underpaying taxes, they can make up the shortfall through increased withholding on their salary or bonuses. A larger estimated tax payment at the end of the year can still expose them to penalties for underpayments in previous quarters, but withholding is considered to have been paid ratably throughout the year, so increasing it for year-end wages can save them in penalties. Make sure you're not having too much (or too little) taken out of each paycheck. The same holds true if you make quarterly estimated tax payments.

2.?????? Be Aware of Your Obligations to States - Don’t forget that state and local governments impose their own filing and payment responsibilities with various income, sales, payroll, and property taxes. States have become more aggressive in taxing corporations that are not physically present in their states, but have sales to customers or payroll or rent paid in those states.? Hold off on paying state and local taxes to the extent possible and pushing them into 2024 in hopes that there will be a repeal of the state and local tax (SALT) deduction limitation. This wouldn’t apply to those who use the standard deduction.

3.?????? Tax-loss Harvesting – As the tax year comes to a close, it is a great time to review your portfolio for unrealized and realized gains and losses. That makes this a good time to consider selling any losing investments to generate a tax deduction and cushion the blow. You can use those losses to zero out capital gains, and then deduct up to $3,000 a year against ordinary income. Losses in excess of that can be carried forward to future tax years until the balance is used up.

4.?????? Optimize your QBI – The Qualified Business Income (QBI)?deduction is the centerpiece provision of the Tax Cuts and Jobs Act, and applies from 2018 through 2025. QBI is a tax deduction that allows eligible self-employed and small-business owners to deduct up to 20% of their qualified business income on their taxes. In general,?total taxable income in 2023 must be under $182,100 for single filers and $364,200 for joint filers to qualify.

5.?????? Contribute to Retirement Accounts - Tax-advantaged retirement accounts (such as a traditional IRA or 401(k) plan) compound over time and are funded with pre-tax dollars. That makes them a great investment in your future. They’re also helpful at tax time, since any contributions you make to these plans lower your taxable income. For the 2023 tax year, the maximum allowable 401(k) contribution is $22,500, plus an additional $7,500 in catch-up contributions if you’re 50+. The maximum allowable IRA contribution for the 2023 tax year is $6,500, plus an additional $1,000 in catch-up contributions if you’re 50+. The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver's Credit all increased for 2023.

For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $73,000 and $83,000, up from between $68,000 and $78,000.

For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $116,000 and $136,000, up from between $109,000 and $129,000.?

For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $218,000 and $228,000, up from between $204,000 and $214,000.

For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

If you have a Health Savings Account (HSA), consider maxing out contributions to that account as well ($3,850 for individuals, $7,750 for families and an additional $1,000 for individuals age 55+). You need to contribute to your 401(k) or similar retirement plan by December 31 to count for 2023. On the other hand, you have until April 15, 2024 to set up a new Individual Retirement Account (IRA) or add money to an existing IRA.

If you don’t need the cash flow and would prefer not to increase your taxable income, you may want to consider a Qualified Charitable Distribution (QCD), directly from your qualified account to a public charity.? While the QCD amount is not taxed, you may not then claim the distribution as a charitable tax deduction.? QCDs are limited to $100,000 per year. Different from rules governing Required Minimum Distributions (RMDs), you can make a QCD gift as early as age 70 ? if you’re charitably inclined. ?If you are age 72 or older, you generally must take RMDs by the date required — the end of the year for most individuals.?

6.?????? Charitable Giving - Current tax law offers?charitable?deductions to donors who itemize taxes?and contribute cash or appreciated non-cash assets held for more than a year.? You may claim a tax deduction for non-cash asset gifts to qualified public charities and donor advised funds up to 30% of your adjusted gross income (AGI).?For cash gifts, the?charitable contribution?tax deduction?limit?rises to?60%?of one’s AGI,?depending on other charitable giving.?Donation amounts in excess of these limits may be carried over for up to five?tax years.?If you plan on giving to charity before the end of the year, remember that a cash contribution over $250 must be documented in order to be deductible.

7.?????? State Residency Status. - For individuals who split their time in two different states throughout the year, now is an excellent time to consider where you may be taxed as a resident. To make it more likely that the high-tax jurisdiction will respect the move and not continue to tax you as a resident, you should track the number of days you are spending in each jurisdiction, and also gain an understanding of the definition of residency for the applicable states. ?

8.?????? Disaster Losses - For tax years 2018 through 2025, if you are an individual, losses of personal-use property from fire, storm, shipwreck, or other casualty, or?theft are deductible only if the loss is attributable to a federally declared disaster?(federal casualty loss).

9.?????? Opportunity Zones are one of the most powerful incentives ever offered by Congress for investing in specific geographic areas. In certain scenarios, not only can an investor potentially defer paying tax on gains invested in an opportunity zone until as late as 2026, but they only recognize only 90 percent of the gain (instead of 100%) if they hold the investment for five years. Additionally, if they hold the investment for 10 years and satisfy the rules, they pay no tax on the appreciation of the opportunity zone investment itself.

10.?? Spend any leftover funds in your flexible spending account (FSA). FSAs are basically bank accounts for out-of-pocket healthcare costs. An FSA earmarks your pre-tax dollars for medical expenses, lowering your taxable income. When you tell your employer how much of each paycheck to set aside for your FSA, remember you’ll pay taxes on any funds still in the account on December 31. You’ll lose access to the money unless your employer allows a certain amount in rollovers for the next calendar year.

In General:

1.?????? You want to accelerate deductions and defer income. There are plenty of income items and expenses you may be able to control. Consider deferring bonuses, consulting income or self-employment income. On the deduction side, you may be able to accelerate state and local income taxes, interest payments and real estate taxes.

2.?????? Defer Income to Next Year - Consider opportunities to defer income to 2024, particularly if you think you may be in a lower tax bracket then. For example, you may be able to defer a year-end bonus or delay the collection of business debts, rents, and payments for services in order to postpone payment of tax on the income until next year.

3.?????? Accelerate Deductions - Look for opportunities to accelerate deductions into the current tax year. If you itemize deductions, making payments for deductible expenses such as medical expenses, qualifying interest, and state taxes before the end of the year (instead of paying them in early 2024) could make a difference on your 2023 return.

Most of all, Mr. Zelin advises working with a CPA or other financial advisor who can provide the best advice based on your specific facts and circumstances as you prepare your taxes.

Steven B. Zelin, CPA is an active member of several tax committees of the New York State Society of Certified Public Accountants and serves as Chair of its Career Committee. He is also a member of the American Institute of Certified Public Accountants.

Mr. Zelin has educated the public about the accounting professional through his role as The Singing CPA?, a registered trademark.? His sense of humor added to his songs, Tax Deductible, Dear IRS, If You Don’t Like Paying Taxes, Audit Client Blues and others featured on his CD, The Singing CPA? introduced in 2008.? He regularly sings on the steps of the post office on the income tax filing deadline and before many non-profit and small business groups.

Mr. Zelin may be reached directly at 646-678-4496, extension 101 or [email protected]