If you live in the US, here are a few things to consider before December 31st.
Certain expenses such as professional membership fees, tuition fees, investment expenses, political contributions, and charitable donations may be payable in January. Consider paying them in 2023, to take advantage of tax deductions.
When you gift the proceeds of securities sale to a charity, you incur a capital gain and have to pay a tax. Consider gifting securities in-kind directly to the charity. As long as you’ve owned the asset for more than one year, you get a double tax benefit from the donation: You can deduct the property’s market value on the date of the gift and you avoid paying capital gains tax on the built-up appreciation.
Take advantage of “loss harvesting”—selling investments such as stocks and mutual funds to realize losses. These losses will offset any taxable gains you have realized during the year. If your losses are more than your gains, you can use up to $3,000 of excess loss to write-off against other income. If you have more than $3,000 in excess loss, it can be carried over to the next year. This can be offset against 2023 gains, plus up to $3,000 of other income. This loss can be carried forward year after year indefinitely.
Contribute the maximum towards your 401(k) plan. This will allow you to get employer matching contributions and the amount contributed grows tax-free. Consider contributing to an IRA. You can do this by April 15, but I recommend doing it sooner so that you can take the advantage of compounding. Making deductible contributions reduces your taxable income for the year.
If you plan to give a child stock to sell to pay college expenses you pay be liable for the kiddie tax. If the gain is too large and the child’s unearned income exceeds $2,200, you could end up paying taxes at the same rates as trusts and estates.
Flexible spending accounts are plans established by employers that allows you to pay into the account which can be later used for medical expenses. Remember to use all the contributions you made into the account, or you will forfeit the amount. Make a last-minute trip to the drug store, dentist or optometrist to use up the funds in your account.
If you received a federal tax refund in 2023, you may have been paid interest. Interest payments are taxable and must be reported on 2023 federal income tax returns.
If you don’t itemize deductions you can take a charitable deduction of up to $300 for cash contributions made in 2023 to qualifying organizations.
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