Tax-Deadline-Is-Near.-Don’t-Miss-These-Last-Minute-Tips

The door hasn’t slammed shut on 2023 tax moves yet, but the door is swinging… While many common tax-savings strategies, such as harvesting losses to offset capital gains, had to be completed before Jan. 1 to count for 2023, there are still ways to wring out benefits retroactively. They include perennial moves such as making 2023 contributions to individual retirement accounts by April 15 and considering all deductions and credits as you prepare your tax return. 

On that note, there are valuable perks this year for folks who bought an electric vehicle or made energy-saving home improvements.  But the following last-chance opportunities are likely to get overlooked because they are new, lesser-known, or confusing. 

Did you remember to grab a full SALT Deduction on your PTE? 

More owners of pass-through entities (PTE’s) such as and S Corp, partnerships, and LLCs may be able to get around the $10,000 limit on deductions for state and local taxes this year. Since the limit became effective in 2018 under the Tax Cuts and Jobs Act (TCJA), more states have adopted a pass-through entity tax, which allows owners to shift their state and local tax burden to the entity. The $10,000 cap doesn’t apply to businesses, so the pass-throughs can claim a full deduction, which reduces the taxable income that flows from the entity to the owners. 

The strategy is known as the state and local tax (SALT) workaround. Currently, 36 states have a pass-through entity tax, and rules are pending in Vermont, Pennsylvania, and Maine.

While it’s too late to elect to pay the 2023 pass-through entity tax in New York, Michigan and California, most states still allow elections for last year. Whether it makes sense depends on your state’s rules. For example, some states require estimated taxes to be paid during a tax year, so if you make the election now, there may be a penalty for not paying estimated taxes. 

Postpone Capital-Gains Taxes  

If you realized big gains late in 2023, there may still be time to carve out those gains (long or short) and invest them in an opportunity zone fund, which will defer paying capital-gains taxes. Opportunity zone investments, established in 2018 under that same TCJA, come with tax breaks to attract capital into economically struggling areas. While some of the juiciest tax benefits have lapsed, two remain: 

  • First, after realizing gains, you have 180 days to invest them in an opportunity zone to qualify to defer capital-gains taxes until 2026, which means taxes would be owed when you file a 2026 return by April 15, 2027. There’s still time: Gains realized on Dec. 1 would have to be reinvested by May 29. Partners in a partnership, shareholders of an S corporation, and beneficiaries of estates and non-grantor trusts have the option to start the 180-day investment period on any of the following dates: 
    • The last day of the partnership taxable year (December 31, 2023); 
    • The due date for the partnership’s tax return (March 15, 2024)
    • The due date for the partnership’s tax return with extensions, for the taxable year in which the partnership realized the eligible gain (September 11, 2024). 
  • Second, if you hold an opportunity zone investment for 10 years, any new gains will be free of capital-gains taxes, including depreciation recapture! 

Reinvesting what you owe uncle sam today can make a big difference in who benefits in the future! 

Take Double Advantage of a New 529 Plan Rule 

Starting this year, assets in a 529 plan that go unused for education costs can potentially be funneled into a Roth IRA for the beneficiary of the 529 plan. Up to $35,000 can be rolled into a Roth IRA on behalf of a single beneficiary, but in any year, you can only roll over up to the IRA’s contribution limit. This year, the limit is $7,000 for folks under age 50, or $8,000 if over age 50. But there is a way to double up on a rollover this year: 

The IRS recently clarified that if you roll over $6,500—the maximum 2023 IRA contribution—before the April 15 tax-filing deadline, that can count as a 2023 contribution, assuming a Roth contribution wasn’t already made. Then you can make a 2024 529-to-Roth rollover of $7,000, this year’s IRA contribution limit. Collectively moving $13,500 to your Roth if under age 50, or $15,500 if over 50. 

To be eligible, a 529 plan must have been opened at least 15 years ago; contributions and earnings accrued in the preceding five years cannot be rolled over; and a beneficiary must have earned income.  

Don’t Overlook a Saver’s Credit 

If your 2023 adjusted gross income (AGI) was no more than $73,000 for couples filing jointly, $54,750 for heads of household, or $36,500 for singles and other filers, you may claim a saver’s credit for contributing to a retirement plan. 

The credit is bigger for lower incomes. The highest possible credit is $1,000 for income limits of $43,500 for joint filers, $32,625 for heads of household and $21,750 for all others. But how do I reduce my Gross Income to get my AGI within the range? Contribute to your retirement account, deductible traditional IRA contributions, health savings account contributions, and educator expenses. 

 


For additional guidance, download one of our free guides below, or head on over to www.assetstrategy.com/contact to book a Discovery Call with one of our advisors.

 

View our FREE Guide for the 2023 filing numbers. Click Here

View our FREE Guide for the 2024 filing numbers. Click Here

Read our 12-Step Tax-Planning ChecklistClick Here


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Because investor situations and objectives vary this information is not intended to indicate suitability for any individual investor. 

This is for informational purposes only, does not represent legal or tax advice does not indicate suitability for any particular investor, and does not constitute an offer to purchase or sell investments. Please consult the appropriate professional regarding your individual circumstance. 

There are retirement account risks that could diminish investor returns, such as, but not limited to: low interest rates, market volatility, withdrawal timing and sequence of returns risk, government policy uncertainty and increased longevity. Prospective investors should perform their own due diligence carefully and review the “Risk Factors” section of any prospectus, private placement memorandum or offering circular before considering any investment. 

Advisory services are offered through Asset Strategy Advisors, LLC (ASA). Securities are offered through representatives licensed with either Concorde Investment Services, LLC (CIS), member FINRA/SIPC, member FINRA. Insurance is offered through Asset Strategy Financial Group, Inc. (ASFG). ASFG and ASA are independent of CIS. 

 

By Karen Hube

March 28, 2024 

This Barron’s article was legally licensed by AdvisorStream. 

Copyright Dow Jones and Company 2024 

 

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