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INDIVIDUALS- 2023 Year-End Update & Planning Considerations

It's that time of year again where we should consider meeting to discuss any year end strategies that might reduce your 2023 taxes. The following are some of the tax breaks from which you may benefit, as well as the strategies we can employ to help minimize your taxable income and resulting federal tax liability for 2023. 

I have compiled a list of actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all of them will apply to you, but you may benefit from many of them. We can narrow down specific actions when we meet to tailor a particular plan for you. In the meantime, please review the following list and contact me at your earliest convenience so that I can advise you on which tax-saving moves might be beneficial:


  • Although the deduction for dependency exemptions is $0 for 2018–2025, certain tax deductions and credits (including the child tax credit for qualifying children under 17) are available with respect to the taxpayer’s dependent. A dependent is defined as either a qualifying child or a qualifying relative.
  • To meet the dependent rules for qualifying child, an individual must be under 19 at the end of the year, a full- time student who is under 24 (the age test) or permanently disabled. To be a qualifying relative the person must have less than $4,700 (in 2023) of income and meet other requirements.
  • For dependents that need to meet a residence, support, or income test, review whether these tests are likely to be met before year-end.
  • Recommendation: taxpayers planning to claim head of household status should maintain records of the amount of time a child spends in each household.

Net Investment Income Tax (NIIT)

  • Higher-income individuals must be wary of the 3.8% surtax on certain unearned income. The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of MAGI over a threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case).
  • As year-end nears, the approach taken to minimize or eliminate the 3.8% surtax will depend on the taxpayer’s estimated MAGI and NII for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year, others should try to reduce MAGI other than NII, and some individuals will need to consider ways to minimize both NII and other types of MAGI. An important exception is that NII does not include distributions from IRAs or most other retirement plans.

0.9% Additional Medicare Tax

  • The 0.9% additional Medicare tax also may require higher-income earners to take year-end action. It applies to individuals whose employment wages and self-employment income total more than an amount equal to the NIIT thresholds, above.
  • Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward the end of the year to cover the tax. This would be the case, for example, if an employee earns less than $200,000 from multiple employers but more than that amount in total. Such an employee would owe the additional Medicare tax, but nothing would have been withheld by any employer.

Maximize Long-Term Capital Gain

  • Long-term capital gain from sales of assets held for over one year is taxed at 0%, 15% or 20%, depending on the taxpayer's taxable income. If you hold long-term appreciated-in-value assets, consider selling enough of them to generate long-term capital gains that can be sheltered by the 0% rate. The 0% rate generally applies to net long-term capital gain to the extent that, when added to regular taxable income, it is not more than the maximum zero rate amount (i.e., $89,250 for a married couple; estimated to be $94,050 in 2024). If, say, $5,000 of long-term capital gains you took earlier this year qualifies for the zero rate then try not to sell assets yielding a capital loss before year-end, because the first $5,000 of those losses will offset $5,000 of capital gain that is already tax-free.

Recognizing capital losses

  • Taxpayers with unrecognized capital losses should consider recognizing those losses this year to offset capital gains that would otherwise be subject to the 15% or 20% long-term capital gains tax rate. Capital losses can also offset up to $3,000 ($1,500 in the case of a married taxpayer filing a separate return) of ordinary income if capital losses exceed capital gains by at least that amount. Recognizing capital losses to offset capital gains can also reduce the amount of income subject to the net investment income surtax.

Increasing contributions to 401(k) plans, SIMPLE pension plans, and Keogh plans.

  • Some individuals may be able to reduce AGI by increasing contributions to retirement plans such as 401(k) plans, SIMPLE pension plans, and Keogh plans.

Making IRA contributions.

  • Taxpayers have until the tax return filing deadline next April to make IRA contributions for 2023. Unlike Keogh plans, which must be in existence by year-end, IRAs can be set up when the contribution is made next year. Taxpayers might want to make IRA contributions earlier rather than later to maximize tax-deferred income on the contributed amount. Eligible taxpayers can also deduct contributions to traditional IRAs, subject to limitations.

Increasing contributions to a health savings account (HSA) or health FSA.

  • Individuals who are covered by a qualifying high deductible health plan (and are generally not covered by any other health plan that is not a qualifying high deductible health plan) may make deductible contributions to an HSA, subject to certain limits. Becoming HSA-eligible before year-end can salvage an HSA contribution made earlier in the year.

Postpone Income & Accelerate Deductions

  • Taxpayers with income near the threshold for this year may benefit from accelerating deductions or deferring income, when possible, so their taxable income falls below the threshold. Similarly, if the taxpayer is well below the threshold this year but expects to exceed it next year, consider options to pull more income into 2023. This could have the added benefit of lower tax on the accelerated income in the event of higher tax rates next year.
  • Postpone income until 2024 and accelerate deductions into 2023 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2022 that are phased out over varying levels of AGI. These include deductible IRA contributions, child tax credits, higher education tax credits, and deductions for student loan interest. Postponing income also is desirable for taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances.
  • Note, however, that in some cases, it may actually pay to accelerate income into 2023. For example, that may be the case for a person who will have a more favorable filing status this year than next (e.g., head of household versus individual filing status), or who expects to be in a higher tax bracket next year. That's especially a consideration for high-income taxpayers who may be subject to higher rates next year under proposed legislation.

Consider Converting to a Roth IRA

  • If you believe a Roth IRA is better for you than a traditional IRA, consider converting traditional-IRA money invested in any beaten-down stocks (or mutual funds) into a Roth IRA in 2023 if eligible to do so. Keep in mind that the conversion will increase your income for 2023, possibly reducing tax breaks subject to phaseout at higher AGI levels. This may be desirable, however, for those potentially subject to higher tax rates under pending legislation.

Standard Deduction vs Itemized Deduction & Bunching Strategy

  • Many taxpayers won't want to itemize because of the high basic standard deduction amounts that apply for 2023 ($27,700 for joint filers, $13,850 for singles and for marrieds filing separately, $20,800 for heads of household), and because many itemized deductions have been reduced (such as the $10,000 deduction limit on state and local taxes) or abolished (such as the miscellaneous itemized deduction and the deduction for non-disaster related personal casualty losses). You can still itemize medical expenses that exceed 7.5% of your AGI, state and local taxes up to $10,000, your charitable contributions, plus mortgage interest deductions on a restricted amount of debt, but these deductions won't save taxes unless they total more than your standard deduction.
  • Consider whether to employ a bunching strategy to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good.

Strategy for Maximizing Itemized Deductions

  • Some taxpayers may be able to work around these deduction restrictions by applying a bunching strategy to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good. For example, a taxpayer who will be able to itemize deductions this year but not next will benefit by making two years' worth of charitable contributions this year.

Required Minimum Distributions

  • New rules for required minimum distributions (RMDs) from an IRA or 401(k) plan (or other employer- sponsored retirement plan). In general, an IRA owner must take their first RMD for the year in which they reach age 72 (73 if they reach age 72 after December 31, 2022). However, they can delay taking their first RMD until April 1 of the following year. Those who reach age 72 in 2022 must take their first RMD by April 1, 2023, and the second RMD by December 31, 2023. If they reach age 72 in 2023, their first RMD for 2024 (the year they reach 73) is due by April 1, 2025.
  • If you are age 70 1⁄2 or older by the end of 2023, and especially if you are unable to itemize your deductions, consider making 2023 charitable donations via qualified charitable distributions from your traditional IRAs. These distributions are made directly to charities from your IRAs, and the amount of the contribution is neither included in your gross income nor deductible on Schedule A, Form 1040. However, you are still entitled to claim the entire standard deduction. (The qualified charitable distribution amount is reduced by any deductible contributions to an IRA made for any year in which you were age 70 1⁄2 or older, unless it reduced a previous qualified charitable distribution exclusion.)

Health Savings Account

Individuals or employees who were covered by a high-deductible health plan at any time during the year and make contributions to an HSA may be eligible for an above-the-line deduction.

  • If you become eligible in December 2023 to make HSA contributions, you can make a full year's worth of deductible HSA contributions for 2023.
  • For 2023, the maximum deduction for an eligible individual with self-only coverage under an HDHP is $3,850. For an individual with family coverage under an HDHP, the limit is $7,750.
  • Individuals who are age 55 or older can make catch-up contributions in addition to their regular contributions for the year. The annual catch-up contribution limit is $1,000.
  • Becoming eligible in December can salvage a contribution for the entire year. For computing the annual HSA contribution, taxpayers who are eligible individuals in the last month of the tax year are "deemed eligible" during every month of that year. Thus, they can make contributions for months before they enrolled in an HDHP.

Caution: A taxpayer who contributes to an HSA under the "deemed eligible" rule must remain eligible during the entire testing period (a 12-month period beginning with the last month of the tax year). Otherwise, any contributions made during a month when the taxpayer was "deemed eligible" are includible in gross income and subject to a 10% penalty tax.

Flexible Spending Account (FSA),

  • Consider increasing the amount you set aside for next year in your employer's FSA if you set aside too little for this year and anticipate similar medical costs next year.
  • Health flexible spending arrangement (health FSA) have changed as follows:
    • For plan years beginning in 2023, the contribution limit for health FSAs is $3,050.
    • The maximum health FSAs may allow participants to carry over to plan years beginning in 2024 is $610.
  • If you are not already doing so and your employer offers a Flexible Spending Account (FSA), consider setting aside some of your earnings tax free in such an account so you can pay medical and dental bills with pre-tax money. Since you don't pay taxes on this money, you'll save an amount equal to the taxes you would have paid on the money you set aside.
  • FSA funds can be used to pay deductibles and copayments, but not for insurance premiums. You can also spend FSA funds on prescription medications, as well as over-the-counter medicines, generally with a doctor's prescription. Reimbursements for insulin are allowed without a prescription.
  • And finally, FSAs may also be used to cover costs of medical equipment like crutches, supplies like bandages, and diagnostic devices like blood sugar test kits.

Gift and estate tax

  • The annual gift tax exclusion is $17,000 for 2023 and will rise to $18,000 in 2024.
  • The unified estate and gift tax exclusion amount, $12,920,000 for gifts made and decedents dying in 2023, will rise to $13,610,000 for gifts made and decedents dying in 2024.
  • Observation: In 2024, because of the portability rules, if a deceased spouse so elects, a surviving spouse could apply $27,220,000 against any tax liability arising from subsequent lifetime gifts and transfers at death.

NOTE - The estate tax exclusion amount is set to revert to $5 million, adjusted for inflation, in 2026 with the expiration of the Tax Cuts and Jobs Act. Thus, unless the sunset date is extended, or the increased exclusion amount is made permanent, in 2026 the exclusion amount will reduce to approximately half of what it currently is.

Sale of a Principal Residence

  • Strategic timing can yield tax benefits. A taxpayer who sells property used as a principal residence for at least two of the five years before the sale may exclude up to $500,000 in gain if married and filing a joint return.
  • Taxpayers with another filing status (single, head-of-household and married filing separately) may exclude up to $250,000.
  • A surviving spouse can qualify for the higher $500,000 exclusion if the sale occurs not later than two years after the decedent's death, if the requirements for the $500,000 exclusion were met immediately before death, and the survivor did not remarry.

Mortgage Interest Deduction.

  • If you sold your principal residence during the year and acquired a new principal residence, the deduction for any interest on your acquisition indebtedness (i.e., your mortgage) could be limited.
  • The mortgage interest deduction on mortgages of more than $750,000 obtained after December 14, 2017, is limited to the portion of the interest allocable to $750,000 ($375,000 in the case of married taxpayers filing separately).
  • If you have a mortgage on a principal residence acquired before December 16, 2017, the limitation applies to mortgages of $1,000,000 ($500,000 in the case of married taxpayers filing separately) or less. However, if you operate a business from your home, an allocable portion of your mortgage interest is not subject to these limitations.

Interest on Home Equity Indebtedness.

  • You can potentially deduct interest paid on home equity indebtedness, but only if you used the debt to buy, build, or substantially improve your home. Thus, for example, interest on a home equity loan used to build an addition to your existing home is typically deductible, while interest on the same loan used to pay personal expenses, such as credit card debt, is not.

Child Tax Credit

  • For 2023, a child tax credit of as much as $2,000 is available for each child under age 17, depending on your modified adjusted income. In addition, a $500 nonrefundable credit is available for qualifying dependents other than qualifying children. Where the credit exceeds the maximum amount of tax due, it may be refundable. The maximum amount refundable for 2023 is $1,600 per qualifying child.
  • The $500 credit applies to two categories of dependents: (1) qualifying children for whom a child tax credit is not allowed, and (2) qualifying relatives.
  • The amount of the credit is reduced for taxpayers with modified adjusted gross income over $200,000 ($400,000 for married filing jointly) and eliminated in full for taxpayers with modified adjusted gross income over $240,000 ($440,000 for married filing jointly).

Clean Energy Credits

  • For 2023, the clean energy tax credits available include (1) residential energy property credits (the energy efficient home improvement credit and the residential clean energy credit) and (2) vehicle-related credits (the new clean vehicle credit, the previously-owned clean vehicle credit, and the alternative fuel refueling property credit). These credits were significantly expanded by the Inflation Reduction Act, generally beginning in 2023.
  • The energy efficient home improvement credit is credit for 30 percent of the costs of all qualified energy efficiency improvements and residential energy property expenditures you make during the year. This credit is subject to an annual limit of $1,200, and there are also limits for specific types of qualifying improvements. These limits are: (1) $250 for any exterior door ($500 total for all exterior doors), (2) $600 for exterior windows and skylights, (3) $600 for other qualified energy property (including central air conditioners; electric panels and certain related equipment; natural gas, propane, or oil water heaters; oil furnaces; water boilers), and (4) a higher $2,000 annual limit for heat pumps and heat pump water heaters, biomass stoves, and boilers. The Inflation Reduction Act also added a credit of up to $150 per year for home energy audits. Roofs do not qualify for the credit beginning in 2023.
  • The residential clean energy credit equals 30 percent of the cost of certain qualified property installed on or used in connection with your home. Qualifying properties are: (1) solar electric property, (2) solar water heating property, (3) fuel cell property, (4) small wind energy property, (5) geothermal heat pump property, and (6) battery storage technology. There is no annual or lifetime limit on the residential clean energy credit except with respect to fuel cell property, which is limited to $500 for each half kilowatt of capacity. In addition, if more than one person lives in your home, the combined credit for all residents can't exceed $1,667 for each half kilowatt of fuel cell capacity.
  • A new clean vehicle credit of up to $7,500 may be available if you acquired a qualified electric vehicle and placed it in service (i.e., taken delivery of the vehicle) this year. To qualify, the vehicle must have been assembled in North America. The calculation of the credit amount will depend on when you take delivery of the vehicle. If you took delivery before April 18, 2023, the total new clean vehicle credit equals a base amount of $2,500 and is increased by the amount of propulsion energy produced by the battery. For vehicles delivered on or after April 18, 2023, the credit amount equals $3,750 for vehicles meeting a critical minerals requirement plus $3,750 for vehicles meeting a battery component requirement. Price limits (i.e., MSRP limitations) apply depending on the vehicle type ($80,000 for vans, SUVs, and pickup trucks; $55,000 for other vehicles). The Department of Energy provides a list at of eligible clean vehicles that meet the requirements to claim this credit, including the applicable MSRP limitation. The credit is not available if your adjusted gross income for the year is over $300,000 (married filing jointly), $225,000 (head of household), and $150,000 (single). Beginning in 2024, the new clean vehicle credit can be transferred to the dealer and used as a down payment at the time of sale.
  • Beginning this year, a credit is also available for the purchase of a previously-owned clean vehicle. The credit amount is the lesser of (1) $4,000, or (2) 30 percent of the cost of the vehicle. In order to qualify for the previously-owned clean vehicle credit, the vehicle must be sold by a dealer for a sale price not in excess of $25,000, and the sale must be the first transfer of the vehicle since August 16, 2022. In addition, the buyer must be an individual taxpayer who cannot be claimed as a dependent by another taxpayer, who purchases the vehicle for use and not for resale, and who has not been allowed the previously-owned clean vehicle credit in any of the 3 years preceding the sale of the vehicle. The credit is not available to taxpayers with adjusted gross income over $150,000 (married filing jointly), $112,500 (head of household), and $75,000 (single). Like the new clean vehicle credit, this credit will be transferable to the dealer beginning in 2024.
  • The alternative fuel vehicle refueling property credit is allowed with respect to any single item of qualified alternative fuel vehicle refueling property placed in service during the tax year not in excess of (1) $100,000 in the case of depreciable property, and (2) $1,000 in any other case. Qualifying property includes bidirectional charging equipment, and the credit can also be claimed for electric charging stations for two- and three-wheeled vehicles that are intended for use on public roads.

Please call me at your convenience so we can set up an appointment to discuss your 2023 tax return and determine if any estimated tax payment may be due before year end. 


Ike Braden, CPA PLLC


NOTE: Ike Braden is a licensed CPA in both Arizona and Montana with over 15 years of public accounting experience. He provides tax services for Individuals, S Corporations and Partnerships, Locums along with business valuation, litigation support and forensic accounting.

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