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End of the Year Financial Planning

End of the Year Financial Planning

December is not only a time to reflect on your finances and goals for the coming year, but also an opportunity to plan for the upcoming tax season. Whether it's personal or business taxes, Principal Eric Scaringe urges people to review their options early and often to maximize their tax savings for 2023.

His first piece of advice is to look for tax-saving opportunities before it comes time to file the return. "Unfortunately, most people wait until their tax return is being prepared," he said. "However at that point, it is often a little too late to start thinking about your taxes and planning what to do for 2023."

The three biggest areas he recommends people review are estate planning, 401k contributions, and Roth contributions. Lifetime estate tax exemptions doubled in 2017 to $11 million, but Scaringe said the exemption will sunset in 2025, returning to $5.5 million. That leaves just two years left to review or begin estate plans to take advantage of the double exemption.

Additionally, estate planning offers ways to transfer wealth to family, tax-free, through the "annual gift tax exclusion." In 2023, the annual limit was $17,000 for individuals and $34,000 for married couples. "That’s the maximum amount you can give a single person without reporting it to the IRS," Scaringe said. "There’s no limit to the number of people that you can gift to."

As for your 401k, 2023 limits were $22,500 for those under 50, and $30,000 for those 50 and older. The tax-deferred contributions are "great mechanisms to reduce your tax liability now and save for retirement," Scaringe said. Meanwhile, Roth contributions are subject to tax but are another great way to put money away for retirement that won't be taxed on withdrawal.

For those who turned 72 in 2023, Scaringe also said to be aware of the required minimum distributions (RMDs)--distributions from tax-deferred retirement accounts--that will begin starting April 2025. In 2023, the SECURE 2.0 Act raised the age of RMDs to 73. Failure to take the withdrawal will make you subject to a 25% excise tax (formerly 50%) with a further drop to a 10% tax if the RMD is corrected within two years.

The EV credit from the Inflation Reduction Act of 2022 is also anticipated to be a big part of the 2022/2023 returns. 2023 was the last year to get the full tax credit, with credits up to $7,500 for new EVs and $4,000 for used. "The IRS has been looking to streamline this process to get clean vehicle credits out to consumers more quickly," Scaringe said. "Starting in 2024, buyers can opt to transfer their credit to the car dealer. In effect, that would reduce the EV’s purchase price by giving the purchaser an upfront down payment at the point of sale." It serves as an immediate discount without requiring a return filing to get the credit, serving as "a win-win-win for the customers, the dealership and Congress," he said.

EV owners in New York State may be eligible for an additional rebate at the state level through the "Charge NY Initiative." On top of the federal credit, the program offers any EV buyers a drive clean rebate of up to $2,000 for new EV purchases or leases, which is even more of a financial incentive to purchase an EV.

At the end of the day, though, Scaringe encourages people to "pick up the phone." "I encourage you not to tackle everything alone," he said. "Throughout my nearly 20 years in this profession, and especially now with ChatGPT, I’ve noticed that clients often believe they understand all the tax rules and nuances and even attempt to handle things independently. However, this approach can lead to missing crucial insights and having blind spots." What it comes down to, he said, is understanding there are times when it's better to entrust the task to professionals who can save you time, money, and potential headaches.


Read the full article published by Albany Business Review.

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