Year-End Tax Planning: 5 More Ways to Help Your Clients

Nov 27, 2023 / By Debra Taylor, CPA/PFS, JD, CDFA
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Time is running out. Your clients may benefit from five more tax-planning items that need to be completed before we turn into 2024. Review these with your clients.
Editor’s note: Don’t forget to sign up for Debbie’s upcoming Tax School for Advisors workshop on January 23–25 and her upcoming Build a Better Business workshop in February.

With the end of the year around the corner, there is plenty on our “To-Do” lists. Because of the nature of our tax code and its connection to the calendar, you’re running out of time to complete this all-important work. We previously discussed Four Things You Must Do Now for Your Clients.

With that in mind, we discuss below an additional five more tax planning items that should be reviewed between now and the end of the year.

1. Don’t forget that tax bracket management is calendar-based

Don’t forget the tried-and-true strategies, such as accelerating deductions into this year, or pushing deductions into next year if the client is bunching deductions. By bunching deductions, a taxpayer may be able to itemize by exceeding the standard deduction every other year, thus saving more in taxes. Remember that it is better to do charitable contributions with appreciated stock or even through a qualified charitable distribution (QCD) and that such tax deductions from contributions do a nice job of offsetting any Roth conversions also done during the year.

Tax bracket management can also include accelerating or deferring income and taking advantage of the qualified business income (QBI) deduction by ensuring that income doesn’t exceed $182,100 for single filers or $364,200 for joint filers.

Start thinking about tax planning as a year-round activity, and not just an episodic activity. This is the best way to ensure great results for your clients, no matter what happens.

And although tax bracket management can be important, particularly when considering the QBI deduction or IRMAA surcharges, be careful not to obsess on the tax bracket at the risk of compromising sound long-term tax planning. In other words, the objective of tax planning is to pay taxes at the lowest rate possible, not necessarily deferring taxes for the longest time possible.

2. Fund (and max out) on retirement accounts

Remember for 2023 that you can contribute up to $22,500 to an employer retirement plan plus $7,500 in catch-up contributions if you’re age 50 or older. Even if there are only a few weeks left in the year, you can counsel your client to contact their human resources department as they can accelerate contributions into the 401(k) plan. The Health Savings Account is another funding opportunity that needs to be completed before year-end.

In addition to the 401(k), your clients may have other benefits available to them that they are not even aware of, such as tax-free student loan repayments or after-tax accounts. It makes sense to know the benefits available to your most valued clients, and the best way to do that is to get a copy of their benefits booklet. Look for the availability of after-tax accounts, mini conversions of those accounts, Roth 401(k)s, tax-free student loan payoffs, and employee stock purchase plans, among other things. The best way to obtain the list of benefits is to ask for it.

3. Roth conversions are critical on a yearly basis

Take this final opportunity for 2023 to analyze your client’s tax returns, review their traditional retirement account balances (including 401(k) balances), and ensure that they are taking advantage of opportunities to perform partial or full Roth conversions (and increase their Roth balances).

To be clear, we think of Roth conversions from a number of vantage points, such as tax bracket arbitrage, maximizing lifetime after-tax wealth, preventing the widow’s penalty, and lessening the impact of the Secure Act on the next generation. Although we consider Roth conversions on a year-round basis, the fourth quarter is a great time to perform the Roth conversion analysis and consider these many areas on behalf of clients, as a proper review entails multiple steps.

We perform two levels of analysis: a basic analysis for smaller retirement account balances that simply looks at tax bracket management, and an advanced analysis for larger balances. The latter creates a lifetime plan that looks towards maximizing tax-advantaged lifetime wealth, driving down lifetime taxes, and pre-paying the taxes, and therefore positioning the assets for the next generation.

4. Essential gifting or funding of trusts is tied to the calendar

The annual gift exclusion is $17,000 for 2023 and many clients may want to exercise that right. That transfer can be in cash or depressed securities, the latter creating an even bigger eventual gift when the market rebounds. But, there are many other creative ways to get assets to the next generation or other loved family members. Those strategies include establishment and funding of a variety of trusts, annual forgiveness of intra-family loans, sending of Crummey letters and so on.

Also, consider whether contributing to a 529 plan may help to reduce your client’s state income tax bill. (More than 30 states allow you to deduct at least a portion of your 529 plan contributions from state income taxes). And, for those families with special needs, you can contribute up to $17,000 a year to an ABLE account which allows people with qualifying disabilities to save money without jeopardizing government benefits.

When considering any of these strategies, take a step back and remember that you need to be creating a lifetime giving and wealth transfer plan for these clients. Although it will likely change over time, creating a road map and ensuring that you have at least annual reviews will help your client best achieve their goals, whether that is helping family, assisting charity, decreasing taxes, or some combination of these objectives.

And don’t forget about the sunsetting of the Tax Cut and Jobs Act of 2017 at the end of 2025—only two years away. The time is now to have these conversations with those clients who are at risk if the lifetime exclusion is dramatically decreased.

5. Calendar year tax work never goes away

This may include reviewing tax withholding, ensuring that the proper estimates are being paid to the government, or possibly pre-paying certain bills (medical expenses and property taxes), so that clients can qualify for those deductions in this calendar year. Be sure to review estimated taxes and withholding because RMD’s are likely higher for clients in 2023 versus 2022 due to the market run-up last year.

Note: Our year-end email to all clients is shown below the end of this article.

Taking a step back, as we complete our tax planning work in 2023 and consider 2024, start thinking about tax planning as a year-round activity, and not just an episodic activity. This is the best way to ensure great results for your clients, no matter what happens.

Source: Taylor Financial Group

Debra Taylor, CPA/PFS, JD, CDFA, is Horsesmouth’s Director of Practice Management. She is also the principal and founder of Taylor Financial Group, LLC, a wealth management firm in Franklin Lakes, NJ. Debra has won many industry honors and is the author of My Journey to $1 Million: The Systems and Processes to Get You There, a book about industry best practices. Debbie is also a co-creator of the Savvy Tax Planning program and co-leader of the Savvy Tax Planning School for Advisors. Several times a year she delivers her Build a Better Business Workshop for advisors.

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