COLUMN: Tax cutting actions to take before year-end

Here are several tax moves to consider as 2023 comes to a close.

• Defer income into 2024. If you think you’ll be in the same or a lower tax bracket in 2024, consider deferring some of your income until next year. If you’re a business owner or self employed, you may be able to push the receiving of taxable cash payments into 2024 by waiting to bill certain customers until late December. If you’re a full-time or part-time employee who receives a year-end bonus, it doesn’t hurt to ask your employer if you can receive your bonus in January instead of December.

• Accelerate deductions into 2023. Consider accelerating tax deductions into 2023 if you have a higher taxable income in 2023 than you think you’ll have in 2024. Business owners can consider prepaying an entire year’s-worth of insurance premiums or purchasing qualified equipment in December. Individuals who itemize their Schedule A deductions can bunch two or more year’s worth of deductions into the current tax year.

• Convert to a Roth IRA. Consider converting some or all of your traditional IRA, SEP IRA, or SIMPLE IRA into a Roth IRA. Although you pay income tax on the amount of the Roth conversion the year it is made, subsequent growth is tax-free in a Roth IRA, and withdrawals from the account are 100% tax-free after five years from the date of the conversion.

• Gift money and other assets. Consider gifting assets to your children and other heirs, or into a trust for them, before the end of 2023. You can give up to $17,000 to each person without cutting into your lifetime gift giving limit of $12,920,000 before gift taxes kick in. If you’re married, you can give up to $34,000 per person.

• Take your retirement distribution. If you’ve already started taking retirement distributions, remember to take your 2023 distribution by December 31st. (If you turned age 72 in 2023, you don’t need to take your first required minimum distribution (RMD) until April 1, 2025.) If you don’t need the money from your RMD, you can make a qualified charitable distribution of up to $100,000 directly from your non-Roth IRA to a qualified charity. These contributions are ordinarily tax-free and count toward your RMD (but they’re not deductible as charitable contributions).

• Establish a 529 plan for education. Contributions to these plans are not tax deductible at the federal level, but some states do offer tax incentives. However, withdrawals for qualifying educational expenses (including private school tuition up to $10,000 per year) are tax-free. There are no annual contribution limits, but contributions over $17,000 per student count against the lifetime estate and gift tax exemption. You are permitted to contribute up to $85,000, or five years’ worth of gift-tax exemptions, in a single year as an initial contribution to a student’s 529 plan.

For more information, visit www.fredtfoxiii.com.

Fred T. Fox III is a Lawton native who owns his own business.