End-of-Year Tax Tips
Taxes: There's no getting around them. There are, however, tax-planning strategies that can help minimize your tax burden as we close out 2023. Here are three year-end tax moves to consider.
Maximize Your Retirement Contributions
Contributing pre-tax dollars is one way to lower your tax bill while growing your net worth. The amount you can contribute and the deadlines to make your contribution depend on the type of account you have.
- 401(k). If you have a 401(k) plan at work, you can contribute up to $22,500 in 2023 ($30,000 if you're 50 or older).1 You have until December 31 to make your contribution and have it reduce your taxable income for 2023.
- Traditional IRA.You can contribute up to $6,500 to a traditional IRA ($7,500 if you're 50 or older).2 The deadline to contribute to an IRA is your tax return filing deadline, not including extensions. That means you have until April 15, 2024*, to make contributions for the 2023 tax year.
Self-employed people have several options (in addition to a traditional IRA) when it comes to saving for retirement in a tax-advantaged account. Here are some other ways self-employed people may be able to save for retirement while reducing their tax bill.
- SEP IRA. Self-employed individuals can contribute up to 25% of net earnings, up to $66,000, for 2023.3 You have until the due date of your return (including extensions) to make your contribution. That gives you until October 15, 2024, to contribute for 2023, assuming you filed for an extension on your tax return.
- SIMPLE IRA. If you're self-employed and have 100 or fewer employees, you can contribute up to $15,500 to your own SIMPLE IRA ($19,000 if age 50 or older).4 The deadline to contribute is within 30 days of the end of the tax year.
- Individual 401(k). If you're a self-employed business owner with no full-time employees, you can contribute a maximum of $66,000 to a solo 401(k) in 2023 ($73,500 if you're 50 or older).5 That maximum contribution consists of up to 100% of your compensation from the company (capped at $22,500 in 2023) as your "employee" contribution, plus up to 25% of gross compensation for the "employer" contribution. The deadline to contribute is the filing deadline of your business tax return, not including extensions.
One way to maximize the tax benefits of giving is to bunch two or more years of charitable contributions into one year.
Bunch Your Charitable Giving
To get a tax break for your charitable giving, your total itemized deductions — including mortgage interest, state and local taxes, and charitable contributions — must be greater than the standard deduction available for your filing status.
For 2023, the standard deductions are $13,850 for single taxpayers and $27,700 for joint filers.6 When you couple this higher standard deduction with the $10,000 cap on state and local taxes, many taxpayers who historically itemized deductions now find it advantageous to claim the standard deduction instead.
One way to maximize the tax benefits of giving is to bunch two or more years of charitable contributions into one year. For example, if you usually donate $7,000 per year to your local food bank, you could donate $21,000 one year, itemize deductions that year and take the standard deduction for the next two years.
Donations must be made by midnight on December 31 in your time zone to deduct on this year's tax return. If mailing your donation, your envelope must be postmarked on or before December 317 for your donation to be deductible in the current year.
Make a Qualified Charitable Distribution
Individuals age 72 or older must take annual withdrawals from their tax-advantaged retirement accounts. These withdrawals are known as required minimum distributions (RMD). If you don't need the money to cover living expenses, consider giving it directly to charity — a tax strategy known as a qualified charitable distribution (QCD).
QCDs allow you to exclude your RMD from your taxable income, which can lower your tax burden. They can even potentially lower your Medicare Part B and D premiums, which are calculated based on your income from the prior year.8
The annual QCD limit is $100,000 per account owner,9 and donations must go directly from your IRA to the charity to qualify.
Tax planning is an essential part of growing your wealth. A financial advisor can provide additional guidance if you need help deciding whether these strategies are right for you and estimating the potential tax savings. Questions? Please give us a call at 1-888-SYNOVUS (1-888- 796-6887).
* Individuals who live in Maine and Massachusetts have until April 17, 2024, to file their 2023 Form 1040 because April 15, 2024, is Patriots’ Day and April 16, 2024, is Emancipation Day.
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Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
- IRS.gov, “Retirement Topics—401(k) and Profit-Sharing Plan Contribution Limits," updated September 26, 2023; accessed September 26, 2023, 2023. Back
- IRS.gov, “Retirement Topics—IRA Contribution Limits," updated September 26, 2023; accessed September 26, 2023. Back
- IRS.gov, “SEP Contribution Limits (including grandfathered SARASEPs)," updated September 26, 2023; accessed September 26, 2023. Back
- IRS.gov, “Retirement Topics - SIMPLE IRA Contribution Limits," updated September 26, 2023; accessed September 26, 2023. Back
- IRS.gov, "One-Participant 401(k) Plans," updated September 26, 2023; accessed September 26, 2023. Back
- IRS.gov, "IRS provides tax inflation adjustments for tax year 2023," updated September 26, 2023; accessed September 26, 2023. Back
- IRS.gov, “Charitable Contribution Deductions," updated September 26, 2023; accessed September 26, 2023. Back
- Medicare.gov, "Monthly premium for drug plans," updated September 26, 2023; accessed September 26, 2023. Back
- IRS.gov, "Important charitable giving reminders for taxpayers," updated September 26, 2023; accessed September 26, 2023. Back