As 2022 comes to a close, with markets down and in the wake of record inflation and rising interest rates, there are several factors and strategies to consider for mitigating taxes in the coming year.
1. The IRS released changes to prevent bracket creep – meaning that amounts will increase next year.
If you haven’t taken advantage of Roth conversions this year, the beginning of next year could be a good time to convert – especially if the market is still down.
2. The estate tax exemption was increased for inflation to $12.92 million per person.
You may be able to gift more or begin working on a game plan for heirs to avoid estate taxes in the future.
3. We’re down to the wire…almost.
If your advisor hasn’t discussed tax loss harvesting in the current environment, there may still be an opportunity to offset gains in this tax year or future tax years.
Looking to the year ahead, what to do now?
If you have a substantial 401(k) balance and plan on donating to charity in 2023 (and will be age 70.5 or older), it may make sense to rollover your 401(k) balance to an Individual Retirement Account (IRA) by December 31st 2022. A Qualified Charitable Distribution (QCD) can be a great way to reduce your taxable income while also supporting worthy causes. QCDs can only be made from IRAs.
If you’d like to discuss any of these potential strategies, we’re happy to work with you.