Like overeating and watching your favorite holiday movie/show (mine is A Charlie Brown Christmas), it’s time for everyone’s favorite seasonal activity: year-end tax and financial planning!
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Sure, focusing on money is a tough sell at this time of year, but a little bit of energy now could help you save or make some money in the future. At the very least, it will help you get better organized for tax season.
IRS changes
One benefit to inflation is that the IRS must increase some of the basic thresholds of the tax code. The highlights for 2024 include an increase in the standard deduction to $29,200 for married couples filing jointly, $14,600 for singles, and $21,900 for heads of households.
Additionally, the contribution limit for retirement plans will rise to $23,000 for employees who participate in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan. The limit on annual contributions to an IRA will increase to $7,000, up from $6,500. (Catch up contributions remain the same for all plans.)
Side Hustler note: Uncle Sam sent gig workers an early holiday gift: another delay in the new rule, which mandated that payment platforms like Venmo, Stripe or StubHub were required to submit 1099-K tax forms for any users who received more than $600 from any number of transactions.
The rule was supposed to go into effect last year and once again, the IRS announced a delay: for 2023, the threshold remains at $20,000 and more than 200 transactions on the payment platforms. In 2024, the threshold drops to $5,000, as the IRS moves toward the eventual $600 limit.
With those facts and figures at your fingertips, consider the following actions before we close out 2023.
Get a jump on your taxes NOW
Use the IRS’s withholding estimator to see if you have had enough money set aside to pay your tax bill in April. If not, notify your payroll department to increase your withholding through the end of the year. If you are not working or are self-employed, you may want to make an estimated tax payment to reduce or eliminate potential tax penalties.
Take your Required Minimum Distribution (RMD)
If you are over age 72 and have a pre-tax retirement account, you must take a distribution and pay the tax due on that amount — or else face a whopping 50 percent excise tax on the amount not distributed as required. The IRS has a handy chart, which outlines the dates and rules for IRA and defined contribution plan RMDs.
Consider a Roth conversion
If you had lower income in 2023 or you think that tax rates are likely to rise in the future, it may make sense to convert to a Roth IRA. When you do so, the amount that you convert will add to your taxable income.
Considering that tax rates are historically low, paying the tax due now may be wise. Once you convert to a Roth, the money grows tax-free and when you retire and withdraw it, there is no tax due. Because Roth plans are not subject to RMDs, using them can help control future taxation of Social Security benefits and/or increased costs of Medicare, which are income tested.
Your losers are winners
If you have a taxable investment account, sell losing positions and use those losses against sales of winning positions. If you have more losses than gains, you can deduct up to $3,000 of losses against ordinary income. If you have more than $3,000, you can carry over that amount to future years. Taking losses is a great way to rebalance your account with Uncle Sam’s help.
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Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at [email protected]. Check her website at www.jillonmoney.com.
