Year End Tax Tips

December 08, 2022
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*Please Note: No portion of the video content, or any amount of prior experience or success, should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results or satisfaction if NECFA is engaged, or continues to be engaged, to provide investment advisory services.



Hi this is Chris Beale founder and senior advisor at NE Capital coming to you at the beginning of December 2022 to tell you you still have time to save on your taxes this year, but you need to act soon.

Let’s start with tax loss harvesting. There is good news/bad news for capital gains this year versus last year. The good news is you won’t have as many taxable capital gains this year – bad news is you won’t have as many capital gains this year. Last year we were able to realize some gains before the market downturn. While we won’t see many capital gains this year, we were able to take some capital losses this year.

When we sell a security at a loss, we can use that loss to offset current or future capital gains. Plus we can offset up to $3000 of ordinary income like wages also.

There’s still time to do Roth conversion. A Roth Conversion allows you to transfer traditional IRA assets to Roth IRA. You pay ordinary income tax now but withdrawals from Roth IRAs are tax-free. We will use a tax bracket management approach to determine how much should be converted. For example, if a married couple has $70,000 in taxable retirement income, they are in the 12% tax bracket. We can convert $13,000 into a Roth IRA and still stay within the 12% bracket. Since the taxable earnings above $83,551 will jump them into the 22% tax rate. Any amount converted from a traditional IRA is money not subject to future required minimum distribution [RMD] rules.

Speaking of RMD rules, if you’re over 70 ½  (I know RMD rules now apply to people age 72 not 70 ½ ) but if you want to make a charitable contribution from your IRA the 70 ½ age still applies. So, if you’re 70 ½ or older, you can donate up to $100,000 from your traditional IRA directly to the charity or charities and the donation counts towards your RMD. There’s no deduction for the donation but the IRA withdrawal does not count as taxable income! This could cause a reduction in income which could possibly lower your Medicare premiums and allow you to take standard deduction while still providing for your favorite charities.

This is a great segway into comparing standard deduction versus itemized deduction. The standard deduction for 2022 is $25,900 for married filers and $12,950 for single filers. Remember there are no $600/$300 charitable donation deductions for 2022 like there were last year during Covid. Therefore “bunching” deductions can make some sense for taxpayers. For example, let’s say Abby and I normally donate $10K per year to charities. We have another $10K in other deductions for a total of $20k. We are better off using the standard deduction of $25,900. BUT what if we were able to take the standard deduction this year and “bunch” two year’s worth of donations next year? We get the standard $25,900 in deductions for 2022 then $30K itemized deductions in 2023. ($20K in charitable deductions and $10K in other deductions.)

Another tax break for charitable donations would be to donate appreciated assets. Let’s say you bought a stock or a fund that has greatly appreciated and would cause a large capital gain tax if you sold it. Don’t sell it and use the money to make your donation in cash. Instead donated the appreciated stock or fund to the charity. You get to deduct the full value of the donation. The charity would then sell the appreciated security and of course as a non-profit wouldn’t pay any tax on capital gains.

I’ll end with two last points. First, check to make sure you paid all quarterly estimates and your withholding is correct for your income, especially if you received a raise of a windfall this year. The penalty for underpayment was 4% earlier this year and due to inflation now at 6%, most likely going to 7% in January.

My second point has to do with what I talked about in my last blog. If you’re the beneficiary of an inherited IRA since 2020, let’s make a game plan to liquidate that account in the most tax efficient way possible within the new 10-year guideline. Remember the IRS requires beneficiary IRAs to be liquidated within a 10-year timeframe starting after January 2020. The IRS did give us a break if we didn’t take any distribution in 2020 and 2021 but not so going forward.

You are not required to be a tax expert. So, call our office and get your plan in place. We can help. We will work with your tax preparer to reduce your taxes.

Finally, don’t wait until the last minute next year – it typically doesn’t pay to procrastinate. Happy holidays from all of us at New England Capital.


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