End-of-Year Planning to Minimize Your Tax Burden

Now is the time to make charitable contributions, reduce your adjusted gross income and take advantage of gift exclusions.

The end of the year is rapidly approaching, but there’s still time to reduce your taxes if you take the right steps. Here are three last-minute financial moves you can make to minimize your tax bill.

  1. Consider Bunching Your Charitable Contributions

    The Tax Cuts and Jobs Act of 2017 substantially increased standard deduction levels, making it harder to benefit from itemizing deductions. But you can maximize the value of your charitable contributions if you bunch them together.

    “Instead of making one charitable contribution this year, for example, of $20,000, and another contribution next year of the same amount, consider bunching them together and do both this year or both next year,” says Maya Brill, Senior Wealth Strategist at Regions Bank in Dallas. “That way, you’ve given $40,000 and gone over the standard deduction, so you get additional deduction benefits.”

  2. Reduce Your Adjusted Gross Income

    If you’re retired and receiving Social Security, your adjusted gross income plays a significant role in whether you have to pay taxes on those benefits. Your adjusted gross income can also affect how much you pay for Medicare.

    “In cases where you have a required minimum distribution (RMD) from an IRA, you can reduce your adjusted gross income (AGI) by making a charitable contribution directly from your individual retirement account,” says Brill. A qualified charitable contribution—up to $100,000—could significantly impact your AGI.

    “If the money goes directly from your IRA to a charity, it satisfies your RMD and doesn’t get included in your adjusted gross income. It’s true that you won’t receive a charitable deduction for the contribution, but you also don’t have to include the required minimum distribution in your AGI,” she says.

  3. Use Your Annual Exclusion for Gifts—or Lose It

    Each year, you can give other people cash or goods worth up to a certain amount and avoid owing any gift tax. For 2023, that amount is $17,000 (up from $16,000 in 2022).

    You can gift the annual exclusion amount to as many people as you would like. So can your spouse, which doubles the exclusion amount to $34,000. If you give over the excluded amount to any one person, you will be on the hook for the gift tax, not the recipient.

    Just remember that the exclusion resets every year, so if you don’t use it one year, you cannot carry it over to the following year. For those making taxable gifts, the lifetime maximum (as of 2023) that is covered by the exemption is $12.92 million ($25.84 million for couples). If you gift beyond the exclusion and the exemption amounts during your lifetime, then you will end up paying taxes on the excess gifts at a top rate of 40%. However, the exemption amount was much lower before the Tax Cuts and Jobs Act of 2017 passed, and could shift downward when the act expires in 2025.

The Next Step Toward Minimizing Your Tax Bill

“To make the most of these strategies, talk to your Regions Wealth Advisor and your tax professional,” says Brill. Your tax professional can help you estimate which marginal tax bracket you’ll be in, and your Wealth Advisor can run cash flow projections to help you understand the financial implications of charitable contributions and gifts.

“Plan for the advising process to take anywhere from a couple of weeks to a month,” says Brill, “and be sure to have updated financial statements and salary information available so your projections will be as accurate as possible.”

Talk to Your Regions Wealth Advisor About:

  1. Setting up an appointment to review your income for the year.
  2. What strategic charitable contributions and gifts might be worth pursuing before the end of the year.

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