Tax planning remains a critical challenge for higher-income taxpayers
This year’s tax guide provides a great deal of useful information to help with your tax and financial planning – particularly if you are a higher-income taxpayer or business owner. The SECURE 2.0 act, which impacts retirement plans, starts to go into effect this year, while the final pandemic-relief measure – the 100% deduction for certain business meals – expired with tax year 2022. In addition, provisions of the “Tax Cuts and Jobs Act” (TCJA) of 2017 continue to impact tax planning and strategy.
As usual, the tax guide was prepared by a trusted third-party provider and is intended to offer food for thought. If something piques your interest or raises a question, your AKM CPA can help you evaluate your own circumstances and consider your best strategic options.
Contents of the 2023-2024 Tax Guide
Control the timing of income and expenses to your tax advantage [Page 2] – An overview of tax on ordinary income and the critical importance of timing both income and deductions. With the higher standard deduction introduced by the TCJA, some taxpayers in low tax states may do better to take this route, rather than itemizing. Other provisions in the TCJA which continue to affect timing strategies are enumerated. This section also includes particular tips for business owners and self-employed individuals. Helpful summaries:
- Chart: 2023 standard deductions
- Case study: Bunching medical expenses to save taxes
- Case study: Payroll tax considerations for owner-employees
- Chart: Itemized deductions that are also deductible for AMT purposes
- Case study: Avoiding underpayment penalties
Complex tax consequences demand careful planning [Page 6] – Strategies for crafting a tax-efficient total compensation package, including restricted stocks, RSUs, incentive stock options, nonqualified options and NQDCs. Helpful summaries:
- Case study: Saving taxes on restricted stock with a Sec. 83(b) election
- Case study: Acting sooner can sometimes be better when it comes to ISOs
Factoring taxes into your investment planning [Page 8] – A detailed summary of tax considerations when buying and selling investments, including an overview of capital gains tax and timing and a discussion of strategic use of losses. Helpful summaries:
- Chart: What’s the maximum 2023 capital gains tax rate?
- Case study: Building up tax losses for the future can be beneficial
- Case study: Watch out for the NIIT
- Case study: The dangers of “phantom” income
Are you maximizing the tax benefits from owning real estate [Page 12] – Overview of strategies for maximizing tax benefits of owning a principal residence, vacation home or rental property, including depreciation-related breaks and the interest expense deduction for real estate businesses. Helpful summary:
- What’s new: 2 tax credits for home energy efficiency improvements
Tax planning is a juggling act for business owners [Page 14] – A discussion of the challenges business owners face in balancing the business’ income, expenses and tax breaks with plans for their individual financial futures. The section includes an overview of how business structure can impact tax liabilities, the TCJA provisions favorable to owners of pass-through entities and a short discussion on exit planning. Helpful summaries:
- Chart: Profit-sharing plan vs SEP: How much can you contribute?
- Case study: The impact of business loss deduction limits
Generosity can pay tax dividends [Page 16] – A discussion of how to leverage the flexibility of charitable contributions in your tax planning, including summaries of substantiation requirements and donating appreciated assets. There are also short explorations of making gifts over time and using charitable remainder trusts and charitable lead trusts. Helpful summaries:
- Chart: How much can itemizers deduct for their donations?
- Case study: A CRT can reduce single-stock exposure risk
How to start children on the right financial track [Page 18] – An overview of how families can put the younger generations on a sound financial footing. Includes an exploration of the expanded child tax credit, tax liabilities on income earned by dependent children and the strategic use of IRAs to help put teens on the right financial track. There’s also a longer discussion of various approaches to paying for higher education. Helpful summary:
- What’s New: 529 plans soon to be more flexible
Reap the benefits of tax-advantaged plans while avoiding tax traps [Page 20] – An overview of retirement plan contribution strategies, the benefits of converting to a Roth IRA and the penalties associated with early withdrawals. Helpful summaries:
- Chart: Retirement plan contribution limits for 2023
- What’s New: SECURE 2.0: Mostly good news for retirement planning
Seizing opportunities while they’re available [Page 22] – Discussion of record-high estate, gift tax and generation-skipping transfer tax exemptions created by the “Tax Cuts and Jobs Act of 2017,” and when those exemptions are expected to revert to lower amounts. Also includes summaries of state tax issues, how to time gifts, the portability of various exemptions and some creative uses of trusts. Helpful summaries:
- Chart: 2023 transfer tax exemptions and rates
- Case study: Now’s the time to create a dynasty
Tax rates [Page 24] – 2023 individual, corporate and trusts and estates income tax rate schedules.