Fall is here. The trees are changing colors. Now is the perfect time to start working on your year-end tax planning. We have put together a quick list of items that you can consider to reduce your current year income taxes or future estate taxes.

BUSINESS CONSIDERATIONS:

• Timing of expenses for cash-basis taxpayers. Under the cash method of accounting, transactions are recorded when cash is received or paid.
  • Review timing of invoices near year end.
  • Accelerate accounts payable payments before year end.
• Prepaid expenses can be deductible for both cash and accrual basis taxpayers if criteria are met.
  • 12 Month rule for prepaid contracts like insurance or software contracts. The taxpayer may deduct the prepayments of expenses so long as the benefit attributable to expense does not extend beyond the earlier of one year or the end of the following taxable year.
  • This also works for services contracts, but the recurring item rules come into play, so you will be limited to the amount of services used by 9/15 of the following year. This can be very useful if you want to push expenses into 2023.
• Bonus depreciation is reduced from 80% in 2023 to 60% in 2024. Review your capital acquisition needs to see if any items can be placed in service in 2023 for a great up front deduction.
• Section 179 write off is $1.16 million in 2023 if there is sufficient taxable income and you do not meet the phase out requirements.
• Employee Retention Credit (ERC): The deadline to file for ERC for tax year 2020 is April 15,2024.
• Sec. 174 capitalization is still in effect. The 2023 expenses will need to be capitalized and amortized over 5 (domestic) or 15 (foreign) years, depending on where research is conducted. Be sure to maximize the R&D Credit to help offset the income impact from the capitalization.
• If you are currently on the accrual method of accounting and your average gross receipts for the past three years are under $29 million, you should evaluate if the cash method of accounting would provide a better tax result.

INDIVIDUAL CONSIDERATIONS:

• Capital Loss Harvesting: If you have capital gains for the year that need offset, consider selling other investments for a capital loss. Capital losses of up to $3,000 may also be used as a deduction on ordinary income. Be watchful of the wash sales rules if you plan to repurchase the sold stock.
• Charitable Contributions: If itemizing deductions, you may deduct charitable contributions up to 60% of your adjusted gross income. Donating appreciated property has a 30% of AGI limit but you can avoid the capital gain income.
• Retirement Plan Contributions: Consider maxing out tax-advantaged retirement accounts to avoid paying income taxes currently.
  • Maximum 401(k) contribution is $22,500 in 2023.
  • Taxpayers 50 and older may contribute an additional $7,500.
  • Consider Roth IRA conversion if you expect your tax rate to be higher in the future.
• Estate Planning
  • The gift tax annual exclusion for 2023 is $17,000 per person.
  • The lifetime exemption for 2023 is $12.92 million per person ($25.84 million for a married couple). This exclusion will reduce to $5,000,000 (before inflation adjustments) in 2026, so if you are considering making large gifts, now is a good time to start planning.

We wish you all a safe and happy fall. Our tax department is available to answer any questions and assist with reviewing your current and future taxes. Please call us at 216-348-9600.