Your 7-Step Tax Planning Checklist

By Andi McNamara, CFP^®
Vice President, Director of Financial Planning
Washington Trust Wealth Management

Crisp fall days turn our thoughts to falling leaves, warm sweaters, joyful holidays … and tax planning? Many people don’t start thinking about their taxes until the new year. But now is the time to do a financial check-up and devise strategies for any last-minute adjustments to minimize your tax liability and maximize your financial well-being—as well as avoid common pitfalls. But don’t wait. Take action before December 31. (April is too late.)

Your 7-Step Tax Planning Checklist

1. Review last year’s tax return and talk to your advisor and CPA now (vs. next year). What’s changed in your life this year? Have you retired? Sold something or made a big gift? Taken a loss? Accrued medical expenses? (Remember that medical expenses can be deductible if they exceed 10% of your adjusted gross income, or AGI.) Has your income increased or decreased? If so, you should let your financial advisor and tax preparer know now, while there may still be time to take action to reduce or offset taxes.

2. Max out your retirement accounts. Contribute the maximum allowed amount to your 401(k), 403(b), 457 plans and IRA. In 2023, you can contribute up to $22,500, or $30,000 if you are 50 or older and your plan allows catch-up contributions. For IRAs, the maximum contribution is $6,500 ($7,500 for those 50 and older), depending on your income for the year.

3. Make those gifts. Now is the time to make the most of your gifting plan – or put one in place - to take advantage of the annual and lifetime exclusions. In 2023, the annual gift tax exclusion is $17,000 per person or $34,000 per couple. The annual exclusion is “use it or lose it”, you cannot carry it over. To make sure you get those gifts completed within the meaning of IRS rules by 12/31, you should act early. In addition, you have a lifetime gift and estate tax exemption, which is at an historically high $12.92 million or $25.84 million per couple in 2023.ⁱ The lifetime exclusion won’t stay this high for long, it’s sunsetting in 2026.

4. Strategize your charitable giving. Planning for your future charitable donations now can maximize your tax savings. For instance, you can bunch your charitable contributions in a single tax year using a donor-advised fund (DAF) to increase your itemized deductions. The funds can be used to support your preferred charities over time. Or you can donate appreciated assets, like stocks. Donating low basis stocks can maximize the tax benefit of your gifts by getting a fair market value deduction and avoiding capital gains tax on the appreciation. Depending on your situation, you might also consider donating to charities by using a Qualified Charitable Distribution (QCD) from your IRA if you are over the age of 70.5. A QCD reduces your AGI dollar for dollar, which will save not only on income tax, but possibly on IRMAA (see #7 below) and other tax credits.

5. Review your portfolio for tax strategies/opportunities. This is a great time to ask your financial advisor to look at your portfolio strategically from the tax planning perspective. Does it make sense to offset your capital gains and reduce your taxable income (as allowed) by selling investments with losses? Is this a good time to rebalance your portfolio from a risk perspective?

6. Make sure you took your full RMD. Use IRS tables or an online calculator to ensure you are taking the correct amount of Required Minimum Distributions (RMDs), the mandatory withdrawals from your retirement account(s). Failing to do so can result in substantial penalties.

The Required Beginning Date (RBD) (i.e., when RMDs start)

• April 1^st of the year following the year in which you reach the applicable age
• Applicable age (incorporating SECURE/CARES/SECURE 2.0)

7. Be Mindful of IRMAA. The Social Security Income-Related Monthly Adjustment Amount (IRMAA) is a stealth surcharge that increases your Medicare Part B and D premiums; you may not even realize it is happening before it is too late. Plan your income to avoid crossing the IRMAA thresholds and consider timing your retirement account withdrawals to minimize the tax impact on Social Security benefits. Learn more about IRMAA and healthcare in retirement.

Talk to your CPA and Washington Trust Wealth Management advisor in the fourth quarter about what’s happened this year that could create tax-saving and wealth-enhancing opportunities. Make sure to update your financial plan and your beneficiaries at the same time to ensure they fit your current financial goals and circumstances.

Looking for more tax planning tips? Read our blogs on Mid-year Tax Planning Tips and Minimizing Your Tax Burden.

Your Washington Trust Wealth team works with you to create a tax-aware financial and investment plan based upon your situation and goals. Please reach out to your advisor if you have any questions about strategies that can help you keep more of what you earn.