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End Of Year Tax Planning for Individuals

Last week I had some end of year planning ideas for businesses. This week, its Individuals.


High-income taxpayers are subject to the 3.8% Net Investment Income Tax on the lesser of net investment income of the excess of modified adjusted gross income over $250,000 for married filing joint and qualifying widowers, $125,000 for married filing separately, and $200,000 for all other filers.


Also, Medicare premiums will be adjusted to the 2021 filed tax returns in a couple of months. Anything you do in 2023 to reduce modified adjusted gross income will not affect Medicare premiums for 2 more years.


If you haven’t taken advantage of retirement plan contributions reducing modified adjusted gross income, you should consider that. It gives you a current reduction in taxable income, but it’s still your money, just growing tax free until you take it out someday.


Another simple way to reduce modified adjusted gross income is to make substantial charity contributions. If you have a favorite charity(s) you still have time to make a large contribution. You could donate highly appreciated stock and really get a big benefit. You get a deduction for the fair market value of the stock, avoiding paying capital gains on that amount. Don’t forget IRA owners who are older than 70 ½ who can have the first $100,000 of their Required Minimum Distribution donated directly to charity, which could reduce the taxable portion of Social Security too.


If you are too young to receive Medicare and have a high deductible health insurance arrangement, you could start a Health Savings Account (HSA) and use it to pay normal medical related costs. You get a deduction for the full amount contributed to the HSA (which reduces modified adjusted gross income). This is especially a great option if you don’t have enough medical expenses to get past the 7.5% deduction limitation for medical expenses, or you don’t even have enough to take itemized deductions over the standard amount.


Don’t forget to get form 1098-T from each of your kids for qualified education credits. Also, make sure, if they file their own tax returns, that they check the box “someone can claim you as a dependent.” This also goes for deducting student loan interest.


If your marital status changes in 2023, whatever you are at 11:59p on 12-31-23 is what you file as.


Clean energy vehicle credit of up to $7,500 for the tax year the vehicle is placed in service. Leave it up to Congress to make a mess of this one. There are so many possible iterations that go into computing this, not enough room in this column.


There is also the good old “Earned Income Credit” for some folks. Up to $7,830 in 2023 for having three or more qualifying children. The secret is to have earned income between a sweet spot of between $8,260 and $17,400.


Have you heard? Proverbs 15:22a says, “Where there is no counsel, plans fail…”

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