A perfect day. Today is Thanksgiving, and most of you are going to overdose on turkey. And, mellow out the rest of the day. Or, maybe vegetate watching football on tv. (Shame on you!)
But, you are also off tomorrow- which means you can start collecting the data you are going to need to have a successful 2023 tax season.
Too many of you wait until after 1 January to do your planning and scheming. The problem with that is that it’s too late to arrange for the best tax deals in 2023. Since they must be completed before the end of the year.
Moreover, way too many folks seem to forget about estimated taxes. There are penalties if you have not submitted about 90% of your due taxes before the end of the calendar year. (Actually, the date is 31 December for employees and 16 January 2024 for those who are expected to be making quarterly payments [self-employed, among this latter category]).
In years past, the penalty and interest the IRS imposed was low. This year- not so! (You can thank the Federal Reserve for raising the interest rates!) The penalty is now 8%- and you already know that interest rates have climbed sky high.
Check your last paycheck, collect all your income data, and then project where you will be by the end of next month (31 December). Then, use the IRS calculator to see if you have covered your tax obligations.
The calculator will let you know if you need to make a tax deposit or if you are due a refund. IF you are due a refund- congratulations!
(NOTE: This is a practice we use for our clients. We ensure that they will cover 105% of their 2022 tax bill with 2023 tax withholdings and estimated payments, unless their income exceeds $ 150K adjusted gross [gross income less up to 10K in state and local taxes, charity, medical expenses (over 7.5% of adjusted gross), and mortgage interest], when that percentage should be 110%). This obviates any penalties and interest, even if they own money in 2023.)
Remember, you can bunch charity from year to year to maximize the benefit. That means skipping donations one year and doubling up the next. And, we can donate appreciated investments that we have held more than a year- this often obviates the tax on an asset that has grown in value.
And, if you are like me- an old fart- you can contribute your IRA minimum withdrawals directly to a charity (up to $ 100K), covering the required minimum distribution and obviating any taxes. The big benefit of doing it this way to reducing the fees you pay for Medicare, since they are associated with one’s gross income.
No one should forget to contribute to their IRA or health savings accounts. The deadline is 15 April 2024, or the date one has filed their 2023 income taxes, whichever is earlier.
If you have a rental business, you want to make sure that you have a list of all covered expenses. And, if improvements need to be made, get them done and paid for this year. It could save you considerable bucks..
