By Steve Crifasi, CTFA, CFP® 

It’s that time of year!

Holiday festivities might be top-of-mind for most, but it’s also important to carve out time for prudent financial moves ahead of your tax bill in 2024. 

In a nutshell, here’s a list of sensible tax-saving steps you can take before we say farewell to 2023.

Use Tax Harvesting to Offset Your Tax Losses

If you happen to be holding on to non-profitable investments, now could be the time to sell them. Here’s why: If you sell investments that have lost value since you bought them, the IRS allows you to use that loss to offset capital gains taxes on your other investments. This is called tax harvesting—and it’s a smart way to lower your tax bill.

Make Charitable Contributions

If you itemize your deductions, giving to qualified 501(c)(3) charities is another great way to lower your tax bill. Your 2023 donation can be either cash, stocks, or household items.

• Cash: You can deduct up to 60% of your adjusted gross income (AGI) from your 2024 tax bill.
• Stocks: You can deduct the fair market value of the stock (at the time of donation), up to 50% of your AGI.
• Household items: If you donate household items (clothing, furniture, etc.) and want to claim a deduction, you need a receipt from the charity that shows the date, amount, and a description of the donation.

Set Up a Donor-Advised Fund

Establishing a donor-advised fund (DAF) is a smart way to both support the causes you care about and also lower your tax bill. A DAF is a “giving” account that lets you make charitable contributions, receive immediate tax deductions, and then recommend which charities you want to support over time. So, basically, you don’t have to instantaneously choose which charity(s) you want to support; you can do it over time as your interests evolve.

Take Your Required Minimum Distribution

A required minimum distribution (RMD) is a mandatory withdrawal from retirement accounts (traditional IRA, SEP IRA, or 401(k)). If you’re the sole owner of a retirement account and you’re 73 or older, you must withdraw the amount that’s calculated using your age and the balance of the account. The amount you withdraw can then be deducted from your taxable income.

Optimize Your Retirement Account Contributions

Contributing the maximum amount to your retirement accounts is one of the more popular ways to reduce your tax bill. For 2023, single filers can contribute up to $22,500 to a 401(k) plan, up to $6,500 to a traditional IRA, and up to $6,500 to a Roth IRA. If you’re 50 or older, your contribution limits increase — an additional $7,500 for your 401(k) and an additional $1,000 for IRAs. The amount you contribute pre-tax is directly deducted from your taxable income.

Convert Your Traditional IRA to a Roth IRA

Here’s a good tax-saving strategy for anyone who will make lower-than-normal income in 2023. If you convert your traditional IRA to a Roth IRA this year, you’d pay taxes now—and here’s the good news—on your 2023 lower income tax bracket.

Not only will you pay less taxes than you would if you converted in a normal-income year, but now you’ve got your retirement money in a Roth IRA account. And Roth IRAs are preferable over traditional IRAs for several reasons: tax-free growth, no RMD (discussed above), estate-planning benefits, flexibility, and accessibility.

Contribute to a Health Savings Account

Want to take advantage of triple tax savings? If so (and who wouldn’t?), you can put money in a health savings account (HSA). If you’re already enrolled in a high-deductible health plan, you can open and contribute to an HSA account. Here’s what you’d get:

• Tax-deductible contributions
• Tax-free growth
• Tax-free withdrawals (for qualified medical expenses)

In addition to tax benefits, you get to roll over your account balance from year to year.

Prepay College Tuition

Aside from avoiding tuition increases, if you prepay next term’s college tuition bill, you can qualify for education tax credits. Both the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) allow you to take $2,500 and $2,000 (respectively) off your taxable income.

Contribute to a 529 Plan

If you’re still saving for future college tuition bills, consider contributing to a 529 plan. Depending on the state where you live, contributions made to a 529 plan are deductible from your state income tax.

Get Personalized Advice!

Tax-savings strategies can be confusing as most approaches hinge on several factors. 

At Westover Capital Advisors, our tax services and advice can help you navigate the complicated rules that the IRS has established. We want you to be able to take full advantage of tax-saving strategies.

If you’re interested in partnering with a fee-only financial advisor, get in touch today! We invite you to call (302) 427-9600 or email steve@westovercapital.com. We look forward to hearing from you.

About Steve

Steve Crifasi serves as Associate Director of Wealth Management and Business Development at Westover Capital Advisors, an independent, fee-only, and privately owned investment and wealth management firm founded in 1999 and based in Wilmington, Delaware. Steve provides tailored guidance and works in partnership with his investment, tax, and planning colleagues to understand clients’ wealth management goals and objectives and help fulfill them. Steve thrives off developing personal relationships with clients, serving as their reliable and trusted financial partner; and as a fiduciary, he provides advice that is always in their best interests.

An advisor since 2008, Steve has over 15 years of experience in the financial services industry. He began his career as a research analyst at Penn Square Capital focusing on the equity and private real estate markets and spent over 13 years at trust companies as a relationship manager for high-net-worth clients. Steve received a Bachelors Degree in Finance from Villanova University and also holds the CERTIFIED FINANCIAL PLANNER™ certification and Certified Trust and Financial Advisor (CTFA) designation from the American Bankers Association. In addition to his role at Westover, Steve is a member of the Delaware Estate Planning Council and Wilmington Tax Group. He has also served on committees for several local charitable and nonprofit organizations in and around Wilmington. To learn more about Steve, connect with him on LinkedIn.