As we reach the end of the year, it is a good time to focus on addressing year-end tax planning. At this late juncture, many of our clients (and, hopefully, readers too) have already started to implement or, at least, think about year-end planning. In this article we have listed some key issues to consider before the end of 2023:

  • Annual Exclusion Gifts.

Each individual can make cumulative annual gift tax exclusion gifts of $17,000 per donee during 2023 ($34,000 for a married couple electing to split gifts). The IRS has announced that this amount will increase to $18,000 for 2024 ($36,000 for a married couple electing to split gifts in 2024). Annual exclusion gifts do not use any portion of an individual's federal estate and gift tax exemption (discussed below). Annual exclusion gifts can be made outright, through 529 Plan benefits (education savings accounts), or in special qualifying trust structures. For those still considering such gifts, it may be worthwhile to plan for 2023 and 2024 at the same time, keeping in mind that gifts for 2024 can be made effective as of Jan. 1.

  • Use of Exemption.

For 2023, the federal and gift tax exemption amount is $12.92 million per individual (allowing a married couple to shield up to $25.84 million from federal estate and gift taxes), and is projected to increase for inflation in 2024 to $13.61 million per individual (or $27.22 million for a married couple). There is no guarantee that these exemption amounts will remain at such high level. Under current law, the exemptions are set to be cut in 2026 to 50% of the current levels.

High net worth individuals may consider whether to make large gifts in order to use their exemptions before the amounts are reduced. Many have already implemented such gift tax planning and may choose to make additional gifts beyond the annual gift tax exclusion gifts to take advantage of the inflation adjusted increases. This isn't necessarily a year-end deadline, however, we can never know with certainly when the tax laws may change and the exemptions may be reduced, so we should be mindful of the potential decrease in the exemptions and consider whether exemptions should be used sooner rather than later (particularly before 2026).

  • Accelerate Deductions.

Taxpayers can prepay deductible expenses due in January (including state and local income tax estimated payments which may not be due until January). However, because of the $5,000 per person cap (i.e., $10,000 for a married couple) for deductions for all state and local taxes, it's important to ascertain whether the limit has been reached before accelerating a payment of such taxes which may be deferred until 2024.

  • Loss Harvesting.

Taxpayers can harvest tax deductible losses to offset taxable gains for 2023. However, be mindful of the 30 day wash sale rule of Internal Revenue Code Section 1091, which could disqualify a deduction of the capital loss if the same, or substantially identical, security is purchased within 30 days after selling at a loss.

  • Required Minimum Distributions.

For those of you who have reached your required beginning date or who hold inherited IRA accounts, you should take your required minimum distribution for 2023 from your traditional IRA or qualified plan account by Dec. 31. Taxpayers who are 72 or older are able to transfer up to $100,000 from an IRA (other than an inherited IRA) directly to a qualifying charity (a charitable rollover) in partial or full satisfaction of their required minimum distribution for 2023.